Car repos occur when a car buyer is unable to make loan payments to the bank or dealership that financed the car. These repossessions are sometimes referred to as "legally stealing the car back," since the car is now owned by the bank, and they are carried out by a repo company hired by the bank. Laws regarding repossession vary by state. If your car is being repossessed, you should know your rights and options.
The car is repossessed by a company that specializes in recovering vehicles for a bank or lender. The bank must first initiate the repossession by contacting the repo company and requesting its services. The repossession company acts according to state laws that govern when and how it may repossess the vehicle.
A repossession can be initiated only by a bank or lender. In some cases, a dealership will repossess a vehicle if it has contracted the financing. In nearly every state, a repossession company is not allowed to enter your home or garage in order to repossess the vehicle, but once the repossession is requested by the bank, the car is legally owned by the bank. It can be repossessed from your driveway, work parking lot or even a grocery store parking lot--wherever the repossession company is able to gain legal access to the vehicle.
The only way to stop repossession is to make outstanding payments on your vehicle. If the process already has started, you might not be able to reverse it. You must contact the bank and make full payment of the amount past due in accordance with its policies on repossession. The bank then must contact the repossession company to cancel the repo. Some banks might require all payments past due more than 90 days to be paid in full to prevent repossession, while others might require the entire past due balance to be paid in full. The first step is to contact your banking representative immediately to try to work out an arrangement.
Repossession may legally occur as soon as you miss one payment, but most banks do not repossess cars this quickly, since it not cost-effective. The resale price of the newly recovered vehicle will be much lower than the balance owed in almost every case. Repossession costs the bank time and money, so the bank is more interested in earning interest on the loan than reselling the vehicle.
Repossession costs the bank less than $1,000 in almost every case, and most repossession fees run about $350 per vehicle. That includes a $50 driver fee, the cost to repossess the vehicle and storage fees. The vehicle is usually auctioned off at wholesale value after it is repossessed through a repossession auction. Dealers and public buyers can purchase the vehicle.
Almost all vehicle repossessions are reported by the bank. This means your vehicle repossession, late payments and loan default will go on your credit record and remain there for up to seven years. Your score prior to the repossession and past credit history will determine how much the repossession drops your score.