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If I can’t make my auto loan payments, will my vehicle be repossessed?

If you are late on your payments, a lender may repossess your vehicle.

Your credit will be affected, you may still owe on any “deficiency balance” on the auto loan, and you will be responsible for repossession costs.

To try to avoid the repossession:

  • Contact your lender as soon as possible. Your lender may be willing to work with you to come up with an affordable payment plan, especially if you have made timely payments in the past. If you do reach an agreement, get it in writing so there isn’t a dispute later.
  • Refinance. You may be able to get a lower interest rate or spread out the payments over more time. Generally, a longer term loan means you will pay more in interest. Shop around.
  • Sell your vehicle. Figure out how much you owe on the auto loan and then check the approximate market value of your vehicle. If you owe less than the value of the vehicle, you can sell it and use the proceeds to pay off the loan. Check your auto loan contract to see if you have a prepayment penalty for paying off early.

 If you do not pay, a lender can repossess your vehicle.  In many states, as soon as you’ve missed a payment on the vehicle, your lender has the right to take back or repossess the vehicle without warning you or getting a court order. Some states have laws that require a notice before repossession, alerting you to what payments have been missed, while also providing a short time period in which you can make up payments to prevent repossession. Servicemembers have additional repossession protections under the Servicemembers Civil Relief Act for auto loans and leases taken out before entering military service.

Lender may not “breach the peace” in repossessing. Under state law, a lender may not repossess a vehicle unless it can do so without a breach of peace. The definition of breach of the peace varies depending on your state law. Typically, it includes things like threatening or using physical force, removing a vehicle from a closed garage without permission, or continuing with repossession after you have resisted or refused to allow the repossession. If the lender commits a breach of the peace, you may contact law enforcement. A breach of the peace may also give you a claim for damages or a defense which may lessen the amount you eventually owe after the sale of the vehicle.

Repossession methods.  Besides physically removing the vehicle, some lenders may also use a starter interrupt device (SID) in place of repossession or to help facilitate repossession. A SID is a device that allows a lender or lessor to remotely deactivate a vehicle’s ignition system if a borrower/lessee misses payments or defaults. The shut-down can be temporary, until a payment is made, or it can be done to make repossession easier. The rules on SIDs vary from state to state so ask your lender before signing the contract if your vehicle is equipped with a SID. If it is, you should ask how this process will work – for example, will you get any warning before the vehicle is shut down? Is there a way for the vehicle to be restarted in case of an emergency?

You may have other rights and obligations under your state law. You may be able to get more information about your state law from your state attorney general , your state consumer protection office , a private attorney or your local legal services office.

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