Table of contents
When you buy a vehicle on a credit, your creditor holds rights on the vehicle until you have paid the last installment. These rights are established by state law and the contract that you and the creditor have signed.
When you sign a car loan agreement, the creditor puts a lien on your vehicle. The creditor is listed as lien-holder on the title and registration of your vehicle to establish your vehicle as collateral for the loan.
If you become delinquent on a car loan, your creditor will have the right to repossess or seize your car and sell it off to retrieve the payment. Though repossession men are not supposed to break into a locked garage, they can arrive at the carport or driveway and simply take away the vehicle at any time of the day. Repossession is regulated by state laws. The law in every state prohibits the repossession men from "breaching the peace" while repossessing your vehicle. If any laws are broken, your creditor may lose all rights against you and be required to pay you damages.
New cars depreciate very fast, that is the monetary value of the car reduces. Your new car loses part of its resale value the moment you take it home. Because most of your payments in the early part of the repayment term are consumed by interest, your equity in the car grows quite slowly, causing your loan amount to quickly exceed the resale value.
Repossessed vehicles are typically sold at auctions, usually for less than the loan amount. The deficit resulting from the difference between auction price and loan balance, is called the deficiency. The consumer who defaults on a loan is liable for the deficiency amount. A creditor can file a lawsuit to get a deficiency judgment which would allow them to have a lien placed on your property and/or garnish your wages.
Often a car-purchaser, defaulting on payments, voluntarily returns the vehicle to the creditor. Unfortunately, that does not help. Voluntary surrender is listed as repossession on a credit report and the consumer remains liable for the deficiency unless the lender agrees to waive their claims in writing.
The adversities of repossessions can be lessened. If you have become delinquent on your car loan or on the verge of it, you may be still able to protect your credit rating! All you need to do is find another person who can take over the loan with the creditor's approval.
You will have to part with the car, but that will considerably reduce the resulting credit damage, even if there are late payments appearing on your credit report.