When you buy a car, truck or other vehicle on credit, your lender retains the right to retain the vehicle if you fail to make payments. These rights are established by the finance contract you signed and by the law of your state. Your failure to make timely vehicle payments allows your lender to "repossess" your car without going to court or, in many states, without warning you in advance.
However, your creditor's right to repossess your car is subject to some limitations. In particular, state law places limits on how your creditor may repossess the vehicle and resell it to reduce or eliminate your debt. If any rules are violated, your creditor may lose other rights against you, or even be required to pay you damages. For further information about your state's specific repossession requirements, contact your state consumer protection agency or your private attorney.
Seizing the Car - Normally, your creditor has legal authority to seize your vehicle as soon as you "default" on your loan. What constitutes default will be stated in your contract, but failure to make a payment on time would certainly be an example. When you are in default, the laws of most states permit the creditor to repossess your car at any hour of the day or night, without prior notice, and to come onto your property to do so.
Breach of the Peace - When seizing the vehicle, your creditor may not commit a "breach of the peace" by, for example, using physical force or threats of force. Taking your car over your protest or removing it from a closed garage without your permission may also constitute a breach of the peace, depending on the law in your state. If your lender commits a breach of the peace in seizing your car, they may be required to pay a penalty or, if any harm is done to you or your property, to compensate you. A breach of peace may also result in your creditor losing the right to collect a "deficiency judgment." A deficiency judgment is the difference between what you owe on your loan and what your lender receives when reselling your vehicle.
Reselling the Car - After your car has been repossessed, your lender may decide to keep the car or to resell it in a public or private sale. Under most state laws, your creditor must tell you if it wants to keep the car because you have the right to demand that the car be sold instead. You may want to exercise this right if the car is worth more than what you owe on it. Most lenders prefer to sell the car. If your creditor chooses to resell the car at public auction, state law usually requires you to be notified of the date so that, if you wish, you can attend and participate in the bidding. If the vehicle is to be sold privately, you are usually entitled to a notice of the date after which it will be sold. Any resale of a repossessed car must be conducted in a "commercially reasonable manner." This does not mean that your lender must get the highest possible price (or even a good price) for the vehicle.
Buying Back the Vehicle - In any of these circumstances, you may be entitled to buy back the vehicle by paying the full amount owed on it, plus the expenses connected with its repossession (such as storage and preparation for sale). Some states have consumer protection laws that also allow you to "reinstate" your loan. This means that you can reclaim your car by paying the amount you are behind on your loan together with your creditor's repossession expenses.
Deficiency Balance - Any difference between what you owe on your loan and what your creditor gets for reselling the vehicle is a "deficiency." For example, if you owe $2,500 on the car and your creditor sells it for $1,500, the deficiency is $1,000. In most states, a creditor who has followed the proper procedures for repossession and sale is allowed to sue you for a "deficiency judgment" to collect the loan balance. Several states, however, have consumer protection laws that restrict creditors from suing for a deficiency.