Facing Repossession? Take These Steps.
Repossession is when the financer takes back the property being financed after a period of non-payment. Typically, cars are the property being repossessed; however, this process can apply to other items such as furniture, electronics, and jewelry.
If you find yourself facing repossession, take these steps.
Understand the Difference in Repossession Types
If you have received warning of potential repossession, or have already had proceedings instigated against you, it’s essential to understand the difference between the two different repossession types:
- Voluntary – With a voluntary repossession, the consumer decides to turn the unpaid property back into the lender.
- Involuntary – With an involuntary repossession, a lender will typically hire someone to repossess the property for them.
While it may seem that voluntary repossession will reflect better on your credit report, it won’t. Both instances will display to future lenders that you have a history of struggling to fulfill your repayment obligations.
Assess Your Loan Terms
If you feel that you are close to facing repossession, or if you have been given warning or notice of intent to repossess, it’s important to familiarize yourself with your loan terms first.
- How much do you owe on your loan?
- What amount of time do you have left on your loan?
- What APR do you have associated with your loan?
- Are there late fees related to missed payments? If so, how much?
Look at Your Budget
Once you have a good understanding of your loan terms, your next step will be to assess your budget and financial standing.
- How much are you spending on bills and necessities each month?
- What amount of money is left over in your budget?
- Are there any areas of spending you can change or reduce to make more room in your budget to accommodate your repayment obligations?
Contact Your Lender
How you choose to respond to potential or supplied repossession notices has to do with what you can afford to pay your lender, how many payments you have missed, and how long you expect you can hold up your end of the agreement following payment resolution.
- If you are one payment behind and don’t foresee this to be a continued problem, arrange to make your missed payment and pay any late fees associated. Sometimes lenders are willing to wave late fees if they are contacted promptly and payment is made in full.
- If you are one payment behind and are unable to make this payment immediately, contact your lender and ask for a loan deferment. In this situation, the lender will work your missed payment back into your loan and show you as current again, but you will need to continue to make all other payments on time. This option can avoid your credit score taking a hit as long as you act promptly in contacting your lender.
- If you have missed several payments, contact your lender as soon as possible to see if there are any refinancing options available. If they are unable to restructure your debt terms, consider seeking outside assistance to refinance to terms more affordable to your situation.
- If the property in jeopardy of repossession is a vehicle, you have missed more than one payment, and you do not think it is an option to continue to pay on this debt, consider trading your vehicle in for a more budget-friendly option.
When Repossession is Inevitable
If you are unable to avoid repossession of your financed property, don’t fight it. When you agreed to the terms of your loan, the property is being used as collateral by the lender until the loan is satisfied; the lender remains the owner of the property until the last payment is made.
Repossessions are not fun, and they will impact your credit score and potentially make it more challenging to secure financing in the future, but your credit score will recover from it eventually with a history of better payment habits on your other loans.