Being diligent with payments is not only vital for your credit score. Consumers who miss several due dates risk having their vehicles repossessed by the lender. How soon does this happen, and what should you do if making the next monthly payment is impossible?
Every lender follows its own procedures. Commonly, repossession does not occur until the payment is 30 days overdue. This means that missing one due date is enough. Once your slip-up is reported, it also appears on your report and stays there for 7 years. It is impossible to remove late payments if you have failed to meet your obligations.
Pros And Cons of Auto Loans
A vehicle is a large purchase, and few of us can afford to make the full payment outright. While auto loans are convenient and popular, they require prudent budgeting. You can drive the car of your dreams right off the lot, but failure to pay will have drastic consequences.
Every loan agreement specifies an interest rate. Essentially, this is the cost of borrowing. The conditions depend on your credit score at the moment of applying. The higher it is — the lower the additional expenses. The assessment may be unfair, which is why so many consumers hire a credit repair company to raise their scores before submitting their applications.
The Allowed Delay
Another critical point is the grace period. Commonly, a borrower can be 10 days late with their payment without accruing a penalty. From the 11th day, the late fee is applied, and non-payment may be reported to the bureau.
The Principles of Repossession
This is a formal procedure whereby the lender takes possession of the vehicle you bought on credit. The car serves as collateral for the loan. In the event of non-payment after a certain period, the institution can exercise its right to seize the vehicle. Afterward, it may sell it to cover some or all of the loss it incurred. Every state has its own legal requirements for the procedure.
It does not matter if the auto loan is a refinancing or an original agreement. Once it goes into default, you will receive late notices, which will be followed by repossession sooner or later. As soon as 30 days after the due date, repossession may occur. Representatives of an auto recovery company will appear at your doorstep, and they will tow the car away.
Overview of the Procedure
Seizing your vehicle and selling it is a complicated process, so any lender would rather make every effort to get the payments from you. Some institutions may wait for 3 months before initiating the procedure. However, this does not eliminate the damage to the score, even if you eventually catch up.
Every missed payment is a delinquency or a derogatory on your file. This is the most consequential negative event, as it influences 35% of the FICO and 40% of the VantageScore assessment. Following a series of delayed payments, the institution will declare you in default. This triggers the recovery procedure.
The institution will enlist an auto recovery service, which will find your vehicle and send a repo man to perform a repossession — tow the vehicle away when it is unattended. Alternatively, the lender may activate the electronic disabling service if the dealership installed it on the car. You will not be able to use it.
How Many Payments Can You Miss?
Every lender imposes its own requirements, so there is no definite answer to this question. In times of economic turmoil, such as the current pandemic, lending institutions are generally more lenient. Check your loan agreement to find the grace period. It may last for 10-30 days.
What to Do If the Vehicle Is Seized
Contact your lender right away to negotiate a solution. Sometimes, vehicles are towed away for no objective reason. Misunderstandings do happen. If your property was seized by mistake, you should get it back quickly. If it was taken away as a consequence of non-payment, try to resolve the matter and have it released back to you.
For example, the institution may agree to a revised payment plan. You may be allowed to pay less until your finances are back on track. Remember, the lender is not really interested in seizing your car and selling it. If the revised conditions are still unacceptable, let the vehicle go.
How Does This Affect the Score?
A legit repossession (default) will stay on your credit report for 7 years. The effects will fade gradually, but getting a new vehicle on credit will be problematic. Lenders are suspicious of borrowers who missed payments in the past.
Whenever you apply for any credit services, the provider retrieves your records to check your financial past. For consumers with tarnished scores, buying a new car is challenging. Moreover, getting any type of credit becomes difficult, whether it is a credit card, mortgage, or personal loan.
If You Cannot Make the Payment
If you find yourself in a bind, contact the lender before the first overdue payment is recorded. Some banks draw up a new payment plan and provide a deferral for clients who cannot afford to make their monthly payments. In case of a deferral, the payments you missed are transferred to the end of your agreement.
This allows you to delay the next payment without penalties for a certain number of days. Any such agreements must be concluded in writing. Importantly, the terms of the loan should remain unchanged.