Consumers who take out an auto loan must remain current with the payments or the lender may repossess the vehicle. Lenders may also repossess if the owner fails to maintain insurance coverage. In some cases, the lender may allow the owner of a repossessed vehicle to reinstate the loan and regain possession of the car.
While repossession laws may vary from state to state, all states require that a lender must repossess a vehicle peacefully. Lenders or repossession agents may not use force, make threats or remove the vehicle from a closed garage without the debtor's permission. According to the Federal Trade Commission, lenders who breach the peace while repossessing a vehicle, may not be able to sue the debtor for a deficiency judgment when the sale of the car does not bring in enough to cover the loan.
Lenders who repossess a vehicle are allowed by law to sell the vehicle in order to satisfy the remaining debt on the loan. The lender must notify the debtor in writing before the sale of the time, date and location. The vehicle may be sold in a private sale or at a public auction. The proceeds of the sale will go toward the satisfaction of the auto loan and the fees associated with the repossession.
In most states, the debtor has the right to redeem the vehicle before it is sold. This means the debtor can buy back the vehicle by paying the full amount owed on the loan plus other expenses incurred during the repossession process. Such expenses include handling, storage and legal fees. The debtor may also attempt to redeem the vehicle at the sale, by bidding on the vehicle in hope of buying it.
Debtors can reinstate their auto loan in some states. This means that the lender can require the debtor to pay the amount that is past due, along with the fees that were incurred during repossession. Debtors who reinstate their loans must remain current with future payments to avoid another repossession. According to the Federal Trade Commission, some lenders may require that an electronic device be placed in the car to disable the engine if a payment is late. The laws regarding this vary from state to state.