What is a Vehicle Repossession?

Malcolm Tatum

Vehicle repossession is an event that occurs when the owner of the car, truck, boat, aircraft, or other type of vehicle fails to make payments on the loan used to purchase the vehicle. When this event takes place, the lender utilizes whatever legal steps are required to lay claim to the vehicle and gain physical possession of the asset. The repossession may be voluntary or involuntary.

A person returning keys to a repossessor.
A person returning keys to a repossessor.

With a voluntary vehicle repossession, the owner who is in default takes the necessary steps to turn over physical control of the asset to the lender. For example, if the owner has lost his or her job and is no longer able to make the monthly installment payments, one option is to proactively surrender the vehicle to the lender. At that point, the lender can declare the loan in default and attempt to sell the asset in order to cover whatever balance remains on the loan. The benefit of this type of repossession is that the debtor eliminates one debt, while the lender does not have to go through the time and expense of paying for a service to pick up the vehicle and transport it to a holding area.

A repossessed car.
A repossessed car.

The vehicle repossession may also be involuntary. In this scenario, the owner attempts to prevent the lender from seizing control of the asset, sometimes by moving the car, truck or even the aircraft to different locations as a means of avoiding the repossession attempts. In the interim, the owner attempts to secure some legal means of preventing the involuntary vehicle repossession, sometimes by securing alternative financing to settle the original debt, or attempting to work out some sort of revised payment schedule with the original lender. In some cases, law enforcement officials become involved in the repossession effort if the lender is unable to repossess the vehicle through standard and usual means.

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It is important for consumers to remember that vehicle repossession does not necessarily end the obligation to the lender. In the event that the lender is unable to sell the vehicle for an amount that does cover the outstanding balance on the loan, plus expenditures related to the collection and repossession process, there is the option for the lender to seek further redress through the court system. The amount of that outstanding balance will often determine whether or not the lender considers the attempt to secure additional funds from the debtor worth the time and expense. In any event, the vehicle repossession is often reported to credit reporting agencies, and is likely to have a significant amount of negative impact on the debtor’s credit rating.

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