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Can you pay off a car loan to avoid repossession? Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our mission is to help you make smarter financial decisions by providing you with interactive tools and financial calculators as well as publishing original and objective content. We also allow users to conduct research and compare information for free – so that you can make financial decisions with confidence. Bankrate has partnerships with issuers such as, but not restricted to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Money The offers that appear on this site are from companies who pay us. This compensation may impact how and when products appear on this website, for example, for example, the order in which they may be displayed within the categories listed, except where prohibited by law for our mortgage, home equity and other products for home loans. This compensation, however, does affect the information we provide, or the reviews appear on this website. We do not include the entire universe of businesses or financial offerings that might be available to you. Srinrat Wuttichaikitcharoen/EyeEm/Getty Images

5 minutes read. Published November 28th, 2022.

Written by Sarah Sharkey Written by Contributing Writer Sarah Sharkey is a contributing writer for Bankrate. Sarah writes on a variety of topics, including savings, banking homeownership, homebuying and personal finance. Editor: Rhys Subitch Editored by Auto loans Editor Rhys has been editing and writing for Bankrate since the end of 2021. They are passionate about helping readers gain the confidence to control their finances by providing detailed, well-studied facts that break down complicated topics into bite-sized pieces. The Bankrate guarantee

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We are compensated in exchange for placement of sponsored products or services, or through you clicking specific links on our website. Therefore, this compensation may impact how, where and when products appear within listing categories and categories, unless it is prohibited by law. This is the case for our mortgage or home equity products, as well as other home lending products. Other elements, like our own rules for our website and whether a product is available in your region or within your self-selected credit score range may also influence the way and place products are listed on this website. We strive to provide the most diverse selection of products, Bankrate does not include details about each credit or financial product or service. Repossessions of cars have increased dramatically since 2020, according to reports . If you’re in debt on your obligations and your car is at risk of repossession, the good news is that you can take steps to avoid this unfortunate outcome. In between reinstatement as well as loan modification There are a variety of options to prevent repossession. Does paying off a car loan stop the repossession process? Repossession rules differ according to the state you live in. In many states there is a possibility that the lender may take possession of the vehicle as soon as you’re in default. Based on the terms of the terms of your loan agreement, that could be a result of missing only one payment. There are a variety of steps to take from missing a payment up to the eventual repossession of your car. Based on the current circumstances, you can take the proper steps . If you’ve never received any notice that you are unable to make your car payment, you’ll probably know about this financial fact before your lender will. Instead of waiting for the lender to find out when you don’t pay take the initiative and contact the lender to discuss your situation. The lender may be willing to hear you out to save the cost of repossession. Try to come to an agreeable solution. For example, you could provide more details about your situation, including when you can make the next installment or what you’re able to pay now. Based on your past relationship with the lender, you might be able to negotiate some sort of temporary reprieve, or . This is especially true in the case of this being the first time you have been in the habit of missing a payment. When the lender has sent only notice A lender may legally take possession of your car with or without notice in a variety of states. But your lender is likely to send you a notification of its intentions to take possession of the vehicle prior to when it actually occurs. If you get a notice of repossession, the first call you should be making is with your lender. Again, an open line of communication between you and your lender may result in the resolution that stops repossession. If you wait until you receive a notice means that you’ll be playing catch-up in explaining the situation to your lender. If the lender will listen to your concerns, provide as many details as possible about when you can make a payment. Additionally, let them know how much money you can put toward a loan today. In the end, it’s in the lender’s best interest to work out an arrangement that is temporary. In the end, the company wants to get paid, and you’ll likely require your vehicle to go to work. Based on the lender and your past an agreement that is temporary is within the possible. If the lender has started the process If it is the case that the lender has already started the repossession process and you do not be able access your vehicle. In this instance, the reinstatement of your loan or loan modification known as resolving the default- could be the best option. In some states, you’ll need to pay the entire past-due amount. That includes every missed payment and any late fees that accrued. Typically, the lender may also require that you pay for repossession costs prior to releasing the vehicle to you. In other states, you might need to pay the total loan to get your car back. This process is called redemption. Not every state allows for reinstatement. If your state does not have reinstatement laws and it isn’t built into your contract, you must still reach out to your lender. It might be willing to modify your loan in order to incorporate it. How auto repossession works repossession is a stressful experience. But understanding the process can help you work through it, and possibly come up with an answer. 1. If a borrower fails to pay, your lender is entitled to take possession of the vehicle as soon as you are in default — and to be able to transfer the vehicle to a debt collection agency. The number of missed payments needed to be in default on your loan depends on your state and your loan contract. In some cases you only have only miss one installment for you to fall into default. In other cases, you might need to miss two or three payments to cause an issue. At this point, open communication between you and your lender is crucial. If you are able to work out an extension, now is the perfect time to make an inquiry. 2. Lender takes your car Once you’re in default the lender may or not send you a notice of its intent to repossess the car. Call your lender to ask for a temporary payment arrangement to avoid repossession in the event that you get an email. Based on the state you live in the lender might be able repossess your car at any time — regardless of whether or not you’ve received a notice. 3. Lender sells the vehicle once the lender has taken possession of your car It could keep the car until you are caught up with the loan. But the more likely outcome will be that the lender will sell the vehicle. In several states the lender must inform you of the sale and give you the chance to reinstate your loan. If you decide to purchase the vehicle before the auction, you’ll need to pay the entire amount owed , including any fees associated with repossession. However, many repossessions are sold through auction. You are entitled to be there and place an offer on your car. 4. Lender sends your bill for any outstanding balance. After you sell the car The lender has to use the funds to cover what you have to pay. However, the amount you paid for the vehicle may not be enough to pay your entire debt. If you owe more than your lender gets in exchange for selling the vehicle, it’s an indeficiency. And unfortunately, in most states, your lender could sue you for any deficiencies. Let’s say for instance that you owe $10,000, but your lender will only offer it for $7,000. In that scenario, the deficiency is $3,000, and the lender could be able to pursue you for the difference. In the event of a surplus from the sale, the lender might be required to distribute it to you. It is not a common scenario but should it occur, you’ll at least have a small gain by selling the property. Other ways to avoid repossession Avoiding repossession is a major concern for many borrowers. Since your car is likely to be a major component of your ability to earn a living. There are a few options to avoid repossession include reinstating the loan: If you can get current on your past-due payments then the lender will allow you to reinstate your loan. Essentially, that means you’re bringing your situation back to the beginning. Once reinstated, you’ll need to continue making the regular payments to your car. Pay off the loan Naturally that paying off the entire auto loan is a lot easier said than done. If this is in your reach this is a way to exit this situation. Refinancing can be difficult as your credit score is taking a hit from missing payments. But if you can find an alternative loan with a lower interest rate or monthly payment, could be the right choice to manage your finances. Declare bankruptcy. If you are behind on other debts The bankruptcy process could be an alternative. Although there are options to do so however, it’s not a sure thing. Repossession may still happen if you aren’t able to find a workable solution. The drawback to these possibilities is that you’ll have to raise the funds to settle the issue. The main point is that if you’re faced with the possibility of repossession, which is uncomfortable discuss the situation with your lender immediately. Through open communication, the lender may offer a deal that is suitable for all.


The article was written by a contributing writer Sarah Sharkey is a contributing writer for Bankrate. Sarah writes about a wide range of topics, including savings tips, banking homeownership, homebuying and personal finances. Written by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since late 2021. They are committed to helping readers gain the confidence to manage their finances with precise, well-studied information that breaks down otherwise complex topics into digestible chunks.

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