Consumer Credit: Repossession Explained

An explanation that helps to understand what ramafications a repossession has on your credit.

Many times we experience financial problems in our lives, problems which sometimes make us fall behind on our bills. For instance, one can fall behind on their car payments and suffer repossession. But do you know what exactly this means to you and your credit? What happens to the balance f your car loan? Following is an explanation of what takes place.

If you have car payments to a bank or financial institution for the purchase of your new or used vehicle, you have to make monthly payments. If you happen to fall behind on a few payments the banks will threaten to seize your vehicle in the form of repossession. Usually they will make every attempt possible to work out an arrangement with you to avoid this. However, some people still do not make plans on paying their car payments. This could happen for a number of reasons and does not always mean they are simply delinquent. Maybe one has suffered from losing a job, or unexpected financial obligations have entered the picture. Once the banks have exhausted all efforts to make you pay your back payments, they will proceed with the repossession.

First, they will notify the local Sheriff's office and inform them that repossession has been ordered. A law enforcement officer or a private contractor will come to your home to tow your vehicle away. This is usually done during late night hours when they feel they have a better chance of you, and your car, being home. Once the vehicle has been taken away, the banks will allow you one final attempt to bring your past due balance current. This will include any late fees, penalties, and fees payable to the sheriff's office and towing company as well. Standardly, they will give you anywhere from two to three weeks to come up with the money. If this time passes and you have not paid your outstanding balance, then the bank will sell the vehicle at a Sheriff's auction. The proceeds of the sale will be applied to your entire loan balance to help pay for the car. In the rare event that the sale of the car results in a surplus, the banks will give you the money minus any administrative fees.

However, if the money earned at the sale is not enough to satisfy the outstanding balance, the bank will impose a deficiency judgment against you. For example, let's say you have an outstanding loan balance of $10,000. The car is sold at auction for $6,000. The remaining $4000 is your obligation to pay. Once a judgment is placed against you, this will appear n your credit report. One may think that this is no big deal, since you no longer have the car. However, this can have negative affects for you in the future. Let's say you want to buy a house a few years later. A mortgage company will make you pay this outstanding balance before they will approve your mortgage request, assuming your credit is reasonably good enough to qualify.

If you experience financial problems and are in jeopardy of having your vehicle repossessed, call the bank or institution that finances your vehicle. As stated earlier, many institutions will work with you to prevent further legal actions like repossession. Just because your car is now gone does not mean your obligation to pay is.

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