Missing a car payment, or even missing several, can be an intensely stressful situation. Since the vast majority of people that have vehicles have bought them with financing, the lender has made sure that they have avenues of recourse if someone falls behind on their payments or even defaults entirely on their loan. One of their options is to reclaim the property that the loaned funds were used to buy since that property is the loan collateral, and that reclamation is called repossession.
Generally speaking, lenders will not make repossession a possibility until the borrower has missed 3 to 4 payments. There are situations, however, often with high-risk borrowers or predatory lenders, where the vehicle can be remotely disabled when only a single payment is missed.
Missing car payments is serious, and it can be the result of countless situations that will require the money the borrower needed for that month's payment. Miss too many, the lender will repossess your car, and that won't even fix the problem. We're going to dive into missing car payments, how they can lead to repossession, how long that may take, and what you might be able to do to prevent losing your car.
How Many Car Payments Can You Miss Before Repo?
This answer is going to vary largely based on your local and state laws, as well as the details of the financing agreement you signed when getting the first loan, for example. The financing agreement that you have regarding your loan, often with the same information being available online, will outline the payment terms and details regarding the repayment of the borrowed funds.
What Is A Late Payment?
With most lenders, simply not making your payment by the agreed-upon payment date may not necessarily make your payment late. Many lenders will have a "grace period" following the due date, where delayed mail and other minimally "late" payments can be considered as having been paid on time. This is not the case with all lenders, however, and with those that do have grace periods, the duration of it can vary, often being 5-7 days.
Following any potential grace period, however, the payment must be submitted, or it must be counted as late when reporting the payment to credit bureaus. The first stage of late payment is 0-30 days late, and while this is the point when you may start seeing your payment failure show up on your credit report, it still may not be late enough to warrant any other action.
Once your most recent payment has become 30 days past due, that is the point where your lender may begin considering other options for protecting their loan. For example, if you bought a new car in January, and had your payment due on the 25th of each month starting in February, only once you failed to submit the February payment by the Time March 25th rolled around, your February payment would be considered officially "missed."
How Many Payments Can I Miss Before Repo?
This will depend heavily on your lender, as well as your location, the type of car, the amount owed, as well as the potential value during resale or auction. Most lenders will not take possession of the car until the borrower has missed 3 or 4 payments. This means the borrower has fallen significantly behind on their payment obligations and is at serious risk of defaulting on the loan.
Depending on the payment requirements and the terms of the loan, this could mean the borrower is nearly 6 months behind on their payments. If a payment isn't counted as missed until a full 30 days after the due date, 4 missed payments would mean that the buyer's last payment was more than 150 days prior.
Will A Repossession Always Happen If Too Many Payments Are Missed?
A repossession is one of the more likely options for most people who fall behind on their loan payment obligations; however, it is not the only option. One of the largest variables is the value of the car in question. High-value vehicles are usually repossessed relatively quickly, and to assist in this, and many dealerships have installed remote-disabling equipment in the car so that it cannot even be used if the borrower is too far behind.
Another option sometimes used if the loan is nearly paid off, or had a relatively low balance initially, is that the lender may simply send the balance to collections. This is a common option when there may only be a few payments left or when the value of the loan or vehicle is not significant enough to warrant more expensive recovery options like repossession. In some states, the lender may also be permitted to take the borrower to court if they believe they never had any intention of paying the debt.
Does Repossession Affect Your Credit?
Not only can repossession affect your credit significantly, but it can also follow you around for years and make it harder to get another auto loan for a long time. Repairing the credit damage can also cost time and money, sometimes several thousand dollars more than the debt.
If you voluntarily offer the car for repossession, the most immediate effect on your credit will be a drop in your credit score of at least 100-125 points. This is often a cumulative effect of the consistent late or missing payments that became the cause of the repossession in the first place, as well as the following collection efforts that will take place for the remainder of the money owed.
The repossession will not only destroy your credit, but it also does not absolve you of the debt or the remainder of the money owed to the lender. You will be responsible for the value left on the loan, and if the car is sold or auctioned for less than what was owed on your loan, you may be held liable for making up the difference. This is often referred to as the "deficiency balance," and without a vehicle, it can be difficult to pay off.
How To Avoid Repossession
If you know you missed a payment, it can be stressful, but if you miss a payment and don't realize it, it can cost you significantly more in fees and catching up. The best strategy to avoid repossession entirely is to make your payments on time, every time, but sometimes life gets in the way, and we need to adapt.
If you missed a payment, first, you need to figure out exactly what you owe and what you can pay. Then you can research your options and discuss getting back on track with your lender. If you're quick and able to potentially adjust your budget a little bit for a month or two, you should be able to avoid a credit catastrophe.
Know What You Owe
Understanding what you owe, how far behind you are, as well as your interest rate and specific loan terms like late fees or interest surcharges, is crucial. If you only missed a single payment, then you may have an easy catch-up job; otherwise, you may be in for a more serious catch-up plan. This is also where you'll need to know exactly what you can pay.
You should take this as an opportunity to evaluate your budget and see if you can trim some fat, which may allow you to pay more for the next month or two, helping you get current on your loan. Depending on how far behind you are, this may be more than a month or two of adjustments, but it can still be done. Be sure you don't overextend yourself on this step, though, since you will need to keep to whatever arrangements you agree to or risk immediate default.
Know Your Options
This step will require some serious thought. How you approach your lender should depend upon your honest belief in whether you can continue to pay your loan, and this was a one-time hiccup, or whether your loan is simply unaffordable in your current circumstance.
If you can normally afford the payment, and you either forgot to make or were prevented from making, a single payment which then put you behind, then the relatively simple solution is just to call your lender and make the payment as soon as possible. Pay any late fees and consider setting up an automatic payment or direct debit.
If you cannot afford the loan any longer, ask for a deferment for the current month, which should stop the repo efforts as well as halt further credit damage. Then look at some long-term options, such as asking your lender if the loan can be refinanced or getting a more affordable vehicle.
What You Need To Know About Your Car Payments & Repossession
Missing a payment isn't the end of the world, but it can be the beginning of serious transportation and credit problems. If you've missed a payment recently, be sure you understand your loan, find out how much you need to pay to catch up, and start budgeting. You can always call your lender and discuss the options they have available to help you make your payments more easily.
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Shawn Manaher is a former financial advisor, has founded 5 online businesses, and is a coach, speaker, podcast host, and author. He's been featured on Forbes, The Consults Corner on TAE Radio, The Writing Biz, What's Your Story, and more.