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Default can happen after just one missed payment, but in most cases, auto loans won’t be charged off until you stop paying for multiple months — up to 120 days, generally.
Your lender will likely send you notice of default before repossessing your car. In some states, you will have the chance to repay what you owe, although this isn’t always the case.
Between default and repossession, there are a few tactics to prevent your car from being taken.
6 ways to avoid repossession
If you’re in default or at risk of it, repossession is a real possibility. To avoid it, you will need to remain in close contact with your lender and restructure your finances.
1. Stay in contact with your lender
Keep your lender up to date on your situation, ability to make payments and overall finances. Document every conversation, including the name and title of each person you talk to, and send any letters through certified mail so you have proof of your efforts.
Lenders would prefer to have their customers pay on their car loans rather than repossess their cars. Be prepared to provide documentation about your financial state. And if anything changes, let your lender know right away.
It pays to be polite but firm when discussing the potential of repossession. You want to avoid it at any cost, so keep asking up the management line until you find someone able to help you with your loan.
2. Request a loan modification
Repossession is a significant risk for the lender, too. It will need to charge off your loan, hire someone to repossess the car, store it somewhere and then sell it at auction.
Because of this, it may be effective to ask the lender for a reduced payment. Your lender will likely be able to modify your loan to defer a few payments or restructure the term to help you keep up with payments. Let your lender know the specifics of your situation and discuss when and how you will be able to repay.
Lenders are under no legal obligation to modify your loan, but it might save you both a lot of the hassle that repossession poses.
3. Get current on the loan
If you can, make up your payments and fees with the lender to reinstate your loan. This will stop the default process and is the most efficient way to avoid repossession.
It is okay if this option isn’t available to you. For most people facing repossession, getting current on the loan isn’t possible. There are some ways to get the cash — like selling your car — but it may put a different type of strain on your life.
4. Sell the car
If an auto loan is too much each month, you can sell your car privately or trade it in at a dealership. Provided you aren’t upside down on your loan — when you owe more than it’s worth — you could switch to a more affordable ride.
Ensure that selling your car will cover the payoff amount of your loan and any fees you owe. If you can’t, it’s best to negotiate with your lender and see if it might allow you to write off fees.
Most importantly, selling your car may not leave you with enough of a down payment to purchase another car. When it’s between repossession, surrendering the car or selling, you will be without transportation no matter what. Selling your car keeps your credit intact, but it may put you in a situation similar to repossession.
5. Refinance your loan
Extending your loan term or lowering your interest rate can make an auto loan more affordable. Unfortunately, if you have missed multiple payments or are in default, you likely don’t have the credit to qualify for refinance.
That doesn’t mean you shouldn’t try. Credit unions and online lenders, along with some small local banks, have more flexible requirements. Keep in mind that applying for financing can also impact your credit score, so make sure you apply for a few loans at one time to prevent multiple hits.
You may not be able to lower your interest rate but extending your loan term is a possibility. This can make your monthly payments more affordable. But it does mean you will pay more interest overall. It may be worth the higher cost to avoid repossession, but it should be done after you have exhausted other options.
6. Surrender your car
You have the option to voluntarily surrender your car to your lender when you can’t pay. You will no longer have access to it and will need to consider alternate ways to get around, but it won’t count as repossession — although your credit score will still decrease.
When you do, your lender will go through a similar process as repossession. It will collect and sell your vehicle at auction. If the sale price covers what you owe, you are in the clear. If not, you will be responsible for the remaining loan amount and any fees you’ve accumulated.
How the auto repossession process works
Once you are in default, your lender has every right to repossess your car. Unless your state law says otherwise, repossession doesn’t need notice or warning. This means you could lose your car at any time once you’ve defaulted.
If your car is repossessed, your lender may give you details for the auction where your vehicle will be sold. Otherwise, you may be able to reinstate your loan by getting caught up on the past-due amount and any fees for repossession. Like all aspects of the repossession process, the information your lender is required to give you depends on your state.
Repossession will stay on your credit report for years, making it that much harder to get a new auto loan. Focus on keeping up with every step of the process, talking with your lender and doing what you can to prevent repossession. Although not every alternative will be available to you, they are worth trying when you are up against losing your car.