When you finance a vehicle, the vehicle serves as collateral for the loan. Should you neglect to make your payments, your lender reserves the right to repossess the car and sell it to cover the remaining balance of the loan. The amount of time that will pass between the date you stop making payments on your car loan and the date the lender repossesses the vehicle will vary by lender. In many cases, however, you may be able to pay the amount you owe, plus fees, to have the car loan reinstated.
Check your state's laws concerning car loan redemption. According to the Federal Trade Commission, some states have consumer protection laws that allow individuals to reinstate their car loans if they are able to pay the past due amount plus any fees that the lender incurred by repossessing the vehicle.
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Examine your original loan contract for an "acceleration clause." If your car loan contract contains one, paying the past due amount and fees will not be enough to reinstate the car loan. As soon as the loan defaults, the amount due will accelerate. This means that you will not be able to reinstate your car loan without paying off the entire balance of the loan.
Contact your lender and ask for a written statement of the full amount necessary to reinstate the loan.
Pay the past due amount, plus fees, within the necessary time frame. A lender will not hold on to your car forever while waiting for you to redeem the loan. The standard time frame to reinstate your vehicle loan is 15 days.
Ask for a statement in writing that the loan has been reinstated and the date and time that the loan was reinstated. Should your car be accidentally sent to auction, or re-keyed after you reinstate the loan, this document will prevent you from having to pay additional charges to recover the vehicle.
All of your personal property that is present within the car must be returned to you whether or not you decide to reinstate the car loan. Items such as a stereo, however, are considered a part of the car and will not be returned.
Filing for bankruptcy can prevent a repossession from occurring or result in the court forcing your lender to reinstate your loan.
Even if you choose to reinstate your car loan, a record of the repossession will still appear on your credit report and damage your credit rating for seven years.
- FTC: Vehicle Repossession - Understanding the Rules of the Road
- Getoutofdebt.org: Repossesssion - Why it Happens, What You Can Do, and Your Rights Before, During and After Repossession
- NOLO: Why Does My Repossessed Car Appear on My Credit Report While I Still Have a Right to Redeem?
- Consumer Action Website: Federal Citizen Information Center