Car buyers frequently purchase a car with monthly payments over a period of several years. If the car buyer does not make these payments, the holder of the loan on the car may repossess the car. This includes a bank or an auto dealership that finances the purchase of the vehicle or a third party creditor. Car loans usually specify that the car is collateral for the loan, which is why the creditor can repossess the car.
Selling the Debt
The creditor is not necessarily the original lender. Some car lenders will factor their loans, selling the rights to collect on a debt to a third party in exchange for a smaller upfront payment. The third party, such as a collection agency, has the right to hire an auto repossession service if the customer does not pay their debt. Once this event occurs, the customer has to negotiate with the collection agency, not the car dealership or the bank that originally made the loan.
Default on a contract is a requirement for a repossession of a car. The terms of the contract between the car buyer, or leaser, and the creditor determine the definition of default. According to the State of Indiana, default may apply to a contract when the car payment is as little as one day overdue. Default may also apply with the violation of other contract terms such as damage or mistreatment of a vehicle under lease.
Notice is a requirement of some states before a repossession can take place. Wisconsin law states that the creditor must mail a letter to the customer that states that the contract is in default. This can include a time period for the customer to respond, which is fifteen days. According to the State of Indiana, a missed loan payment is an automatic default, and the creditor can repossess the car after that point without a warning.
The creditor may remove the vehicle at any time, even in the middle of the night. The repossession service is responsible for not disrupting the peace, so they cannot cause a disturbance such as loud noise towing the car away that harasses the customer's neighbors. The repossession agency is also responsible if they injure the customer or damage other property, but the customer is also liable if they harm the repo man.
Selling the Car
The creditor can sell a vehicle after repossession. According to the Federal Trade Commission, this can include a public sale such as an auction or a private sale. The State of Indiana requires that the sale price be commercially reasonable, which does not mean that it is the highest possible value that the customer can receive for the car. If the customer still owes money after the sale, the customer is liable to the creditor for this balance.