Does a Repossession Stop a Car Purchase?

When a person takes out a loan on a car, the loan is generally secured by the car itself, which acts as a form of collateral. If the borrower misses a number of payments on the car, the lender will generally have the right to seize the car, in a process known as repossession.

Features

When a lender repossesses a car, the borrower is not longer obligated to continue making payments on the car. The car is now legally transferred to the lender. However, the borrower this does not mean that borrower does not owe any additional money. He may, in fact, still be obligated to pay off part of the car's cost, as well as additional fees.

Effects

When the lender repossesses the car, the lender will generally sell the car, so as to help pay off the debt still owed on the vehicle. If the proceeds from the sale of the car are not enough to cover the outstanding debt, the borrower is liable for paying this difference, as well as the cost of the repossession. For example, if a borrower owes $10,000 on the loan and the car is repossessed and sold for $8000, the borrower still owes $2000 to the lender to make up for the difference between the outstanding debt and the sale price of the car, as well as any fees that lender accrued is repossessing and selling the vehicle.

Buying Back a Car

Although the borrower is not required to do, before the car can be resold, many states give the borrower the right to buy back the vehicle by paying the amount owed on it, plus the costs incurred by the lender in the course of repossessing it. According to the Federal Trade Commission, borrowers should check with their state's consumer protection office for specifics of their laws.

Considerations

According to the Federal Trade Commission, borrower's may have a legal right to contest any judgment leveled against them for the difference between the car's sale price and the outstanding loan under a number of conditions. If the lender violated the law when seizing the vehicle or didn't sell the car in a way that ensured it would fetch a fair price, the borrower may have grounds to sue him.

Warning

Even if the sale of the repossessed vehicle is enough to cover the cost of the repossession and the outstanding loan, the borrower's credit rating will stick take a large hit. According to the law offices of Carreon & Associates, a vehicle repossession stays on a person's credit report for up to seven years.