How Car Repossession Works and What You Can Do If It Happens

Buying a car often means taking on a large loan and keeping up with steady monthly payments. If that has become difficult, you are not alone. Consumer Affairs reported that more than 1.2 million vehicles were repossessed in 2022. With average car prices up 28% over the past five years, seven-year auto loans have also become increasingly common.

Repossession often begins after a borrower has missed payments for about 90 days, or roughly three months. Depending on the state, the lender may not need to give advance warning or obtain a court order before taking the car. After that, the vehicle is taken and stored. The lender may keep it or sell it, and if the sale does not cover the full balance owed, the borrower could still be responsible for the remaining amount, plus repossession and storage costs.

If possible, the best step is to contact the lender before repossession happens. Many lenders are willing to work out late payments or a revised schedule because repossession creates extra work for them and often returns only about 30% of the loan value, according to Debt.org. If the car has already been taken, the first thing to ask about is how to recover any personal belongings left inside, since those items are not part of the loan. After that, you may be able to reinstate the loan or try to buy the vehicle back.

What happens during repossession, and what rights do you have?

When a car loan is in default, the lender may hire a towing company to recover the vehicle. In many cases, this happens without advance notice, although some states and situations require warning first. For example, in Wisconsin, if the original loan amount is not more than $25,000, the Wisconsin Consumer Act requires written notice and a 15-day waiting period before repossession can occur. In many other places, the process is fast and unexpected, usually involving a tow truck arriving, hooking up the car, and driving away.

It is also important to understand what repossession agents can and cannot do under state law. In Massachusetts, for example, a lawful repossession cannot breach the peace. That means a car cannot be taken if the driver is inside it, and physical force, threats, coercion, or intimidation are not allowed. In some states, vehicles inside a garage are also protected from repossession. In one case, a GM dealership was ordered to pay $350,000 for a wrongful repossession, underscoring the importance of knowing state rules and contacting law enforcement or a lawyer if you believe your rights were violated.

Fees add up, and your credit can take a serious hit

If you fall behind because of financial hardship, losing the car is only part of the damage. The lender must pay for the repossession itself, as well as storage, sale expenses, and sometimes attorney fees, and those costs are often passed on to you. In other words, after struggling to afford the monthly payment, you may end up owing even more. While the exact total depends on several factors, some law firms say the tow alone can cost as much as $500, with storage charges of about $75 per day.

Repossession also leaves a long-lasting mark on your credit. Once the lender takes back the vehicle, the record can remain on your credit report for seven years. It may also affect your insurance costs, with your credit score and ZIP code potentially pushing rates up by thousands of dollars. Payment history is a major part of a FICO Score because it helps lenders assess risk, so a repossession can make it harder to qualify for future loans. Even so, better money management can help rebuild credit over time.

You may still be able to recover the car

Even after repossession, there are still a few ways to get the car back. One option is to pay the entire balance owed, including late fees, which would return the vehicle to you free and clear. Of course, if that amount were easy to pay, the repossession likely would not have happened in the first place. Another possibility is reinstating the loan, which usually means paying the overdue installments to bring the account current and covering any repossession-related fees charged by the lender.

You may also have a chance to buy the car back if the lender sends it to auction. Before that sale takes place, the lender must notify you of details such as the auction location, date, and time so you can potentially bid on the vehicle. In some cases, whether the car is sold at auction or privately, you may still be able to recover it by paying off the loan in full before the sale is finalized.