How Does Car Repossession Work?

Financial difficulties can affect all of us unexpectedly sometimes, but when you miss several car payments, you’re putting your wallet and your wheels at risk. While we all know that we need to make our payments according to the timeline agreed upon when you financed the vehicle, sometimes there can be confusion about the timeline, or what the borrower’s rights are if they are unable to make repayments.

Getting a clear understanding of what car repossession is, and how it works, well in advance can give you some much-needed leverage with your lender. This can help you choose smarter options and avoid the potential lasting credit damage. In this post, we’ll break down exactly what repossession means, how a typical repossession goes down, and how long the impact can last.

What is car repossession?

When you go to buy a vehicle and don’t have cash for the full purchase price, you have the option to apply for financing. Getting a car on finance can have benefits, including helping you build your credit score, but financing is a loan, and the security or collateral on that loan is the vehicle itself. You might call it “your car,” but ownership of that car doesn’t officially transfer to you until you make the last payment.

Until then, if you go into default, which is typically 30-90 days without a payment, the creditor has the option to reclaim that vehicle without going through the court system. Depending on the laws in your state and the terms of your loan agreement, the lender may be able to repossess your car if you miss one loan payment, and they may not be required to give you any warning.^[1]

According to the Consumer Financial Protection Bureau, in most places, the creditor can reclaim the vehicle to satisfy the debt, provided the pickup doesn’t “breach the peace”. Examples of behavior that “breaches the peace” can include making threats or using physical force, removing a vehicle from a closed garage without permission, or continuing with a repossession after you have resisted.^[2]

In many states, lenders can repossess a vehicle without a warning or a court order if you have missed a payment, but some states require lenders to give you notice before repossessing your vehicle to let you know what payments have been missed and give you time to make them up.

For active-duty service members, the Servicemember Civil Relief Act (SCRA) prohibits repossessions without a court order for auto loan contracts or service agreements that you entered into before your military service.^[2]

How car repossession works

Every repossession is unique, but most will have some things in common. Here’s what the typical repo will look like.

1. First is the collection outreach. This is where the creditor mails, calls, and may even text to try to get you to pay current or look into hardship options.
2. The next step will depend on whether it’s a voluntary or involuntary repossession. For a voluntary repo, you arrange a time and place to surrender the vehicle. With an involuntary repossession, depending on the state, the lender may be able to repossess your car at any time, whether you’ve been given notice or not.
3. Once the vehicle has been repossessed, it will generally be sold (often at auction) in an attempt to recoup the financial loss of the default. If the auction price doesn’t cover what you owe after repossession fees and the loan balance, you’ll still owe a deficiency.
4. If there is a deficiency owed, it will be forwarded to collections.^[3]

In some cases, you might be able to stop or even reverse the process by catching up on the loan. Some states' laws give you the right to pay to get your vehicle back after repossession, often giving you a time period where you can make up any overdue payments and additional costs associated with the repossession. The specifics of those post-repossession options will vary by state, though.^[2]

How long does a car repossession stay on your credit?

Regardless of whether you surrender the vehicle or not, having a repossession on your credit history is a serious derogatory mark. The late payments and the repossession entry can stay on your credit reports for 7 years, starting with the date of the first missed payment that led to the eventual default.^[4] You may also experience other impacts like:

• Negative impact on your credit score.
• Higher borrowing costs, due to elevated interest rates, and could have higher down payment requirements.
• Difficulty qualifying for new credit products.^[4]

What to do if your car is repossessed

Suddenly realizing that your vehicle is gone can be incredibly stressful; acting fast will give you the best chance at limiting fees, as well as getting the car back, if possible.

Confirm that your car was repossessed

Once you determine that your car was repossessed, you should contact your lender. Ask them for an itemized statement that shows your loan balance, late charges, storage fees, as well as the allowable timeline for either reinstatement (paying enough to catch up on past‑due amounts) or redemption (paying the full balance).^[2]

Keep in mind that you may not have a right to both, or either, and it will typically depend on a combination of the state where the loan was issued and the contract for the loan. The worst has already happened, and your car is gone, but a quick phone call can easily clarify deadlines and fees to get it back or prevent unnecessary storage fees.^[5]

Weigh your options

Now that you’ve got the information you need regarding your repossession, take some time to think about your options and compare them. The least expensive option is to reinstate the loan, which will generally involve paying overdue payments, late fees, and repo costs in one lump sum by the stated deadline. You may have the right to reinstate your loan if it is built into your loan agreement or if the laws of your state allow you to reinstate the loan. Not all states provide the right of reinstatement, and some national banks may not be subject to state laws relating to loan reinstatement.

The other, usually more expensive option is redemption, which is paying the full remaining balance, plus expenses. While a more expensive option, it’s also a permanent solution to repossession of that particular vehicle. Keep in mind, generally, most people aren’t able to redeem their repossessed car; if you are unable to make the car payments, it’s unlikely you’d be able to afford paying off the entire balance. It also might not be a good idea because the car is most likely often worth much less than you’d have to pay to get it back, and it could have been damaged during the repossession process.^[5]

Most people have personal items in their car, and if you can’t or won’t get your car back, the lender and the party holding it cannot keep or sell those items. This means they must give you access to get those items back. This will typically mean calling the lot where it’s being stored, and stopping by during business hours, where someone will allow you access to get your stuff out of the vehicle once you’ve shown them ID or other evidence that you were the borrower.^[6]

If you aren’t getting the car back through reinstatement or redemption, the lender will likely auction the vehicle to recoup the balance of the loan. Before this happens, the lender needs to mail or email you about the sale date and location. The auction timelines can be incredibly short, so read carefully.

Even if you aren’t planning on getting the car back, pay attention to what it sells for and what the deficiency is, because you’ll likely owe that deficiency. However, if the car does sell for less than you owe, you can also negotiate that deficiency balance. In many states, the lender will need to prove, on some level, that the sale was “commercially reasonable” before taking you to court for the remainder. This gives you leverage to ask for a reduced payoff amount or even an affordable payment plan.^[7]

What to do when your car is repossessed

Another thing to think about is how you’re going to get around for the time being. Rideshares may work for a short period, but that’s going to get expensive fast. Research public transportation options in your area, including routes, times, and prices. If you’re in a rural area, connect with members of your community for help getting around until you have personal transportation again. Look into coworker carpooling to make getting to work easier for the time being.

Finally, no matter what’s going to happen with the repossessed vehicle, you’ve already suffered the negative impacts on your credit, so it’s time to start rebuilding. You already know that a repossession and the missed payments that led to it will live on your credit reports for 7 years, so it’s going to take a while to rebuild. Major steps include staying current on all other obligations and payments, paying down any carried balances, adding new accounts over time, and keeping them in good standing.^{[4] [8]}

Ways to avoid car repossession

1. Call your lender before you miss a due date: Making the effort to communicate shows that you’re willing to collaborate in good faith, but it also gives the lender or servicer the time they may need to make room for other temporary solutions like changing due dates.
2. Ask about hardship or forbearance programs: If the issue is simply a temporary setback, request a written agreement that adds skipped payments onto the end of your loan, or spreads them across future months.
3. Consider refinancing while the account is still current: If you have built your credit or market rates have fallen, you may be able to refinance your loan to lower your monthly payment. This can make it easier to stay current, but you’ll usually need to do this before your first late payment hits your credit report.
4. Sell or trade in the car before default: If your car’s value is relatively close to, or even above, what you owe, selling it yourself can cover the balance and eliminate the loan entirely.^[9]

FAQs about car repossession

Can I get my car back after repossession?

In most cases, you can get it back if you move fast, know your state’s rules, and, of course, have the money to at least get current on your loan. There are two ways to get your vehicle back from repossession before it’s sold at auction: reinstatement of the loan or redemption of the vehicle.

Reinstatement requires that you pay the past‑due amount, late fees, and repo costs in one lump sum to put the contract back in good standing, but this option is only available in certain states. Redemption means you pay the entire remaining balance plus expenses, satisfying the loan in full.^[2]

Can I lease a car with a repossession on my credit?

You may still be able to find a lease agreement, but expect far stricter terms and less than ideal pricing. A recent repossession can drop your credit score by 100 points or more, pushing even the most reliable borrowers close to, or into, subprime loan territory. You might be able to get slightly better terms by adding a co-signer, but remember that defaulting on that obligation would put your co-signer on the hook for the same balance.^[10]

Is it illegal to hide a car from repossession?

Knowingly hiding a car from repossession can technically be an intent to defraud if proven. In several states, it would be counted as “concealment of collateral,” which can be a criminal misdemeanor, but in a few states, it is a felony. In both cases, you’ll be facing fines and potential jail time if convicted.

On top of that, it only delays the inevitable. The lender may accelerate the loan, making it all due at once. They may hire a skip tracer to find the vehicle, which will add more expense to your balance. They may even file a replevin action, which is a court order that allows law enforcement to take the vehicle, adding those fees to your balance as well.^[11]

Bottom line

Car repossession doesn’t just inconvenience you, it can create financial consequences that follow you for years. The best defense is taking fast action, as soon as you have the chance.

Reach out to your lender at the first sign of trouble, and ask about hardship or other payment assistance options. With patience, discipline, and the right tools, rebuilding is possible.

Sources

1. Experian, “How Bad Is It To Default on a Car Loan?” https://www.experian.com/blogs/ask-experian/how-bad-is-it-to-default-on-a-car-loan
2. CFPB, “What Happens if My Car is Repossessed?” https://www.consumerfinance.gov/ask-cfpb/what-happens-if-my-car-is-repossessed-en-865/
3. Bankrate, “How Does Car Repossession Work?” https://www.bankrate.com/loans/auto-loans/how-does-repossession-work
4. Experian, “How Long Does It Take for Repossession to Come Off Your Credit?” https://www.experian.com/blogs/ask-experian/how-long-for-auto-repossession-to-come-off-credit
5. NOLO, “Car Repossession: Redemption Vs Reinstatement” https://www.nolo.com/legal-encyclopedia/car-repossession-redemption-v-reinstatement.html
6. NOLO, “I Had Personal Belongings in My Car When It Was Repossessed” https://www.nolo.com/legal-encyclopedia/i-personal-belongings-car-repossessed-can-i-things-back.html
7. NCLC, “Motor Vehicle Repossessions” https://library.nclc.org/article/motor-vehicle-repossessions-consumer-debt-advice-nclc
8. Experian, “How to Rebuild Credit” https://www.experian.com/blogs/ask-experian/credit-education/improving-credit/how-to-rebuild-credit
9. Experian, “How Can I Stop My Car From Being Repossessed?” https://www.experian.com/blogs/ask-experian/how-can-i-stop-my-car-from-being-repossessed
10. Experian, “Can You Buy a Car With a Repossession On Your Credit Report?” https://www.experian.com/blogs/ask-experian/can-you-buy-a-car-with-a-repossession-on-your-credit-report
11. NOLO, “What Happens if I Try to Hide The Car From the Repo Man?” https://www.nolo.com/legal-encyclopedia/what-happens-i-try-hide-the-car-the-repo-man.html

About the author

Becca has over 10 years of experience as a content writer, working across various industries including finance, digital marketing, education, travel, and technology. Her work has been featured in publications including Forbes, Business Insider, AOL, Yahoo, GOBankingRates, and more.

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