How to Avoid Car Repossession
Car repossession can have far-reaching consequences, as many of us rely on our cars to get to work, take our children to school etc. Not to mention having a car repossessed can impair your credit record significantly.
What is Repossession?
If you fall into arrears on your car payments, the credit provider that financed the purchase of the car has a right to simply seize it, without having to go to court. It is good practice to ensure that you fully understand the details of your vehicle finance contract and the terms of repossession, should you fall behind on payments.
The agreement may specify that you can avoid repossession by ‘curing the default’. To cure the default is to bring the account up to date and pay all costs and attorneys’ fees required.
Paying the Deficiency
If your car does get repossessed, your lender will store it and arrange for it be sold at a public auction. The sale proceeds will then go towards the outstanding balance.
But, what if the proceeds are insufficient? In these circumstances, your lender will ask you to make up the difference. Even though your lender is legally required to sell your car at a “commercially responsible price”, there is no guarantee it will cover the deficit.
But, what if you cannot afford to settle the deficiency in a lump sum? In this case, your lender may allow you to pay it off in instalments over a certain term.
Once you come to an agreement regarding deficiency payment, it’s advisable not to pay until you get everything in writing. If your lender refuses to prepare an agreement, you should do so and send them a copy once you have signed and dated the original.
Lender Demands a Lump Sum
Your lender may refuse to let you pay off the deficiency in instalments. But you should not give in to their demands. By paying a lump sum, you may not be able to afford to cover your basic living expenses or priority debts anymore.
If you refuse to pay the lump sum, your lender may hand the deficiency over to a debt collector. Otherwise, your lender may sue you for the right to collect the deficiency.
If they win the lawsuit, they may request the court’s permission to put a lien on your assets, which will prevent you from borrowing against or selling the asset until you pay the deficiency.
Or they may seize your assets and sell them to cover the debt. Alternatively they may garnish your wages, deducting a portion of your salary for period of time. Lastly, they may write off the deficiency, reporting it as uncollectable to the credit bureaus.
Getting Your Car Back
After your car is repossessed and auctioned off, there are two ways of getting your car back. One option is to buy it back from your lender. It may be financially sensible to buy your car back if its value is greater than the outstanding balance on the vehicle finance.
Otherwise, you could reinstate your vehicle finance. To do this, you will need to agree to resume payments as per the original agreement. It’s best to speak to a consultant at NDA’s in-house legal department, who will assess the agreement and your budget for you.
It is possible to avoid repossession. As soon as you begin struggling with your payments, take immediate action. Negotiate with your lender to have your payments reduced, or you can have NDA do this for you. Otherwise you could sell the car or downgrade to something within your budget.
The moment you suspect that you may not be able to keep up with your car payments, contact NDA. We will negotiate with your lender to have your payments reduced and the term extended. If your lender agrees, you may end up paying more on interest overall, but at least you will avoid the repossession of your car.
If your lender won’t negotiate or if selling isn’t an option, you could give your car back as a last resort. This is called voluntary repossession. Voluntarily giving your car back will spare you the costs of the lender repossessing it. Though, you may still have to cover the lender’s costs of storing and selling the car. The process is much the same as having your car seized.
Clearly, your best chance of avoiding repossession is to contact NDA as soon as you realise you cannot afford your car payments. So, we can negotiate with your lender on your behalf.