Everything you need to know about a vehicle repossession.

If you’re going through a vehicle repossession, it can be an overwhelming and emotional time. But it’s important to understand the process and take steps to prevent it from happening, or take the necessary actions if it does. Remember, you’re not alone in this situation.

With the right steps, you can work out a solution with your lender, and rebuild your credit to purchase another vehicle in the future. Don’t be ashamed, don’t feel guilty, don’t be angry, it’s important to know your rights, to understand the process, and to know that there are resources available to help you navigate through it.

The emotional toll a vehicle repossession can take on you often stems from a lack of clarity on how the process works. The word alone can strike fear into most people. But a vehicle repossession isn’t the end of the world. With the right knowledge and steps, you can take the situation into your own hands.

What is the exact process of a vehicle repossession?

A vehicle repossession is a process where a lender, such as a bank or finance company, takes back possession of a vehicle that has been financed and is in default, meaning the borrower has failed to make their payments. The exact steps can vary depending on the state laws and the lender’s policies, but the general process is as follows:

  1. Default: The borrower has failed to make their payments and is in default on their loan.
  2. Notice: The lender sends a notice to the borrower, letting them know that they have defaulted on their loan and that the vehicle may be repossessed if the payments are not caught up.
  3. Repossession: If the borrower does not bring the loan current, the lender sends a repossession agent to take possession of the vehicle. This is typically done without the borrower’s permission and can happen at any time and any place where the vehicle is located.
  4. Storage: Once the vehicle is repossessed, it is typically stored in a lot or facility until it can be sold at auction.
  5. Sale: The lender will sell the repossessed vehicle at a public auction. The proceeds from the sale will go towards paying off the outstanding loan balance.
  6. Deficiency balance: If the sale of the vehicle does not cover the outstanding loan balance, the borrower may still be responsible for the deficiency balance.

It’s important to note that specific laws of different states may vary, and the lender may have different procedures.

How bad does a vehicle repossession hurt my credit?

A repossession can have a significant negative impact on your credit score and your ability to purchase another vehicle, but it’s not forever.  Realistically, a vehicle repossession can lower your credit score by 100 to 250 points, depending on your credit history. This effect on your credit score will be greater if you have a good credit score to begin with and less if you have a poor credit score. A repossession can stay on your credit report for 7 years.

Your ability to purchase another vehicle will also be affected by a repossession. Lenders will see the repossession as an indication of high-risk and may be less likely to approve you for a loan. There are exceptions, of course. Many people will find them approved for a subsequent loan, but at much worse terms than someone without a repossession on their credit report.

Additionally, you may be required to pay a higher down payment, or you may only qualify for a loan from subprime lenders who offer financing to high-risk borrowers with higher interest rates.

When will a repossession show up on my credit report?

It may take several weeks for your repossessed car to show up on your credit report. Typically, it can take between 30 and 60 days for the repossession to be reported to the credit bureaus. Keep in mind that once it’s reported, it will remain on your credit report for seven years and can have a significant negative impact on your credit score.

Even though the repossession hasn’t been reported yet, lenders may find out during the loan application process as they check your credit report and may ask if you’ve had any vehicles repossessed. I recommend checking your credit report regularly, making sure that all the information is accurate and being aware when the repossession is reported. You are entitled to a free credit report from the three main credit bureaus every year.

Can I buy another vehicle before the repossession is reported?

It’s possible to buy another car before a repossession shows up on your credit, but it may be difficult to get approved for a loan. When a vehicle is repossessed, it can take several weeks for the repossession to be reported to the credit bureaus. During this time, it is possible to apply for a car loan and potentially get approved before the repossession shows up on your credit.

However, lenders may still find out about the repossession during the loan application process, as they will check your credit report and may ask if you’ve had any vehicles repossessed. If they find out, they may deny your loan application or offer you a loan with less favorable terms, such as higher interest rates.

It’s also possible that the lender who has repossessed your car may offer you a loan to purchase another car, but the terms will be usually less favorable with high interest rate.

It’s important to note that, buying another car before the repossession shows up on your credit is not a long-term solution for rebuilding your credit, as it will not change the fact that you had a repossession on your record. It is recommended to address the repossession and work on improving your credit score before buying another car.

What happens if I don’t pay the deficiency balance?

Reminder: A deficiency balance is the remaining amount of debt that a borrower owes after a repossessed vehicle is sold at auction, and the proceeds are applied to the outstanding loan balance. When the proceeds of the sale do not cover the total loan, you’re responsible for the remainder, which is known as a deficiency balance. 

If you don’t pay the deficiency balance, the lender may take legal action to collect the remaining debt. This can include:

  1. Filing a lawsuit: The lender may file a lawsuit against you in civil court to try to collect the remaining debt. If the court rules in the lender’s favor, they may be able to garnish your wages or place a lien on your property to collect the debt.
  2. Sending the debt to collections: The lender may sell the remaining debt to a collection agency, which will then attempt to collect the debt from you. The collection agency may also report the debt to the credit bureaus, which can damage your credit score further.
  3. Using a repossession agent: In some states, a lender can use a repossession agent to repossess any other property you own, including other vehicles or personal property, to collect the deficiency balance.

It’s important to note that different states have different laws regarding deficiency balance and repossession, and the lender may have different procedures. In certain states, the lender is not allowed to collect the deficiency balance at all, while in other states the lender can collect it through any legal means.

The truth about a deficiency balance.

We help consumers resolve their deficiency balances every day, for significantly less than what’s owed. These balances are a special kind of debt, as they are bought and sold for literal pennies on the dollar. Our negotiators have achieved reductions of as much as 85% of the balance on deficiency balances. And of course, in our program you pay off your debt, not a third party. We do this to ensure you get FULL credit for paying off your debt, even though you’ve only paid a fraction of what’s owed.

If you have or are currently dealing with a repossession, please reach out to us to see if we can help. Remember, a vehicle repossession isn’t the end of the world and can often be handled in a debt relief program like ours. Stay calm, educate yourself, and make a plan. We’re always here to help if you find yourself overwhelmed. 


Your partner in debt relief, 

Consumer First Financial