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Repossessions

  

Some loans are secured by collateral. This is something that is designated to be taken by the creditor in the event that the customer defaults on the loan. The most common loans like this are mortgages and car loans.

With a car loan, the creditor will place a lien on the car, and will be listed as lien-holder on the title and registration. This legally establishes the car as collateral for the loan, and gives them the option to seize the car without a lawsuit.

If the customer becomes delinquent (gets behind on payments) on a car loan, the creditor (a bank, car dealer, or finance company) can repossess the car. A repossessor will arrive at the customer's home, and simply take the car. S/he may bypass or pick the locks, or may have regular keys. Repossessors are not allowed to break into a locked garage, by may come onto to customer's property (driveway, carport, etc.) They can arrive at any time, day or night. The primary restriction on their behavior is quite vague: the may not "breach the peace."

Sometimes a car-purchaser will realize that s/he cannot afford to continue making the payments, and will voluntarily return the vehicle back to the creditor. Unfortunately, this will still be listed as a repossession on the consumer's credit records (a seriously negative item), and there may still be further liability. It is not as simple a "walking away from it."

Cars, especially new ones depreciate (become less valuable) very quickly. A new car may suddenly lose $2000 in re-sale value the moment you drive it away from the dealer. Also, during the early part of the repayment period, most of the payments are consumed by interest charges, so the consumer's equity will grow very slowly. The loan often becomes greater than the resale value of the car.

Repossessed cars are typically sold quickly and cheaply at auctions, for amounts that will not cover the balance owing on the loan. The difference between the actual sale price and the higher loan balance is known as the "deficiency", and the consumer who defaulted on the loan is liable for this amount. The creditor may then file a lawsuit and obtain a "deficiency judgement" and go after the consumer's other assets, such as bank accounts, and may garnish his/her wages. This can happen even if the consumer had voluntarily returned the car.

If you are delinquent (or are about to become so) on vehicle payments and are facing imminent repossession, you may be able to protect your credit rating by finding another person to take over the loan (with approval from the creditor.) You will have to give up the car, but will lessen the resulting credit damage (although there may still be late payments showing on your credit files.)

 

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