February 8, 2023

What happens before, during and after a car repossession?

What happens when your car gets repossessed? See your options for best handling this situation and how to avoid it in the first place. 

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What happens before, during and after a car repossession?

A man attaches a vehicle to a truck as part of a car repossession.

Having your own vehicle is expensive, after your rent or mortgage it’s likely your next biggest monthly expense. It’s a necessity of life if you rely on your car to get to work, or if your job requires you to have your own vehicle.  

With inflation, there’s less money to go around for each bill and many people are struggling to make their car payments. 

Worrying about if you’re going to lose your vehicle is a stressful situation to be in and anyone experiencing this will have a lot of questions. What happens during a car repossession? Can you get it back?  What happens to your credit? We’re here to answer all those questions and more.   

What is car repossession?

Car repossession is when your car is taken away as a result of outstanding payments. A car loan is a secured loan, meaning that the lender has an interest in the car until you pay it off in full.  

It can take as few as just one missed payment to be at risk of having your car repossessed. Yes, you read that right. A single missed payment can put you in danger of having your car repossessed.  

This will vary from lender to lender, so you should always read the fine print in your agreement.  

If you have a good history of making your payments on time though you may be at less risk of having your car removed than someone who has defaulted on their payment multiple times. Repossession laws vary from province to province in Canada but it’s likely the lender will notify you if you have missed payments. But, even with a good history, if you miss two or three payments in a row it’s likely your car will be repossessed.   

Once a vehicle has been repossessed, the lender will attempt to sell it again to cover the cost of your loan. If the sale does not cover the full amount of your outstanding debt then you may still be responsible for making up the difference, depending on which province you live in.  

Before repossession. Or how to avoid it?

The best way to avoid having your car repossessed is to ensure you’re paying your bills on time and in full.  

You may realize your car loan debt is too much to handle. If you’re struggling, don’t avoid paying and hope nothing bad will happen. Reach out to your lender and tell them you may miss a payment. It’s better to be proactive and open a dialogue. Your lender doesn’t want you to miss a payment either. It’s possible you will come to a new payment arrangement that you can manage better.  

Your lender will reach out to you after the deadline comes and goes. If you haven’t communicated with them before you absolutely need to at this point.  

Are you sure that you can no longer afford to keep your car?  

If you realize your debt is unmanageable, speaking to a Licensed Insolvency Trustee (LIT) can help you get a clearer picture of your financial situation and what debt management solutions are available to you. It may be possible to rejig your budget and your debt obligations and avoid a repo altogether. 

Need a clearer understanding of your finances?

What happens during a repossession?

At this point your lender believes you’re not going to be able to pay the loan back and has decided to recoup their asset by taking back the vehicle from you. It’s essentially a last resort option because the lender doesn’t want this to happen. If it does come to this, you have some choices about how it’s done. There are two types of repossession paths you can choose.

Voluntary repossession

Voluntary repossession is where you willingly surrender your car to the lender. In this case, you inform the lender that you are unable to meet your payments and arrange a time to drop off the vehicle. Yes, you lose your car but there is a potential cost benefit to this.  

If the lender must spend money to repossess your car, for example getting a bailiff to tow away your vehicle or it costs money for them to store the car, they can pass those costs onto you.  

Voluntarily surrendering your vehicle will ensure you don’t incur any added costs for the repossession.  

A voluntary repossession leaves you with no car, but it does take away a lot of the stress. 

Involuntary repossession

In this case the lender repossesses your car without your consent at any time. You may wake up one day to discover the car has been taken from you in the middle of the night, or even from your work. This can also cause a lot of stress. 

It’s likely the lender will have had to hire a company to repossess your vehicle and those fees can be passed onto you.  

As mentioned above these costs will be passed on to you and must be paid in order to retrieve your vehicle, assuming that is still an option.  

In either scenario you will be without a vehicle, but voluntary repossession gives you a degree of control about how it happens and can save you from unwanted stress and embarrassment. 

What are the consequences of repossession?

If your car is repossessed you will probably have a lot of questions such as: “What happens now? Can I get my car back? If so, how? Will this affect my credit going forward?”

How to get your car back after it's been repossessed

This is a longshot in reality. If you can’t afford the payments and your car has been repossessed, it’s unlikely you will get it back, but not impossible.  

In order to get your car back you have to come to an agreement with the lender to begin paying the loan again. You’ll also have to pay any fees that were incurred in the repossession process as well. The lender doesn’t have to do this for you though, they can refuse and put the car up for sale.  

Basically, to get the vehicle back after a repossession you must fully pay back the payments you’ve missed, plus what it cost the lender to repossess the vehicle. 

You can also settle the loan with a lump sum if you suddenly find some extra money. But again, this is an unlikely scenario. 

The only option left is to buy it yourself when the lender puts it up for sale. Many lenders put repossessed cars up for auction and may not tell you when or where it’s being sold so it can be difficult to find out how to buy it yourself. You can ask the lender for information on the sale if you’re interested in trying to get it back this way. 

How does repossession affect your credit?

Having your car repossessed will have a massive impact on your credit score. Depending on your previous credit history, it can drop your score from between 60 to 240 points. It also affects your credit rating. Your credit rating is on a scale from R-1, a perfect score, to R-9, the worst. Repossession will take your credit rating down an R-8, just one above filing for bankruptcy. A repossession can also stay on your credit report for up to seven years. 

This credit drop will happen regardless of whether you get your car back. The repossession is on your credit record at that point. It also doesn’t matter if you choose voluntary or involuntary repossession.  

Generally, if you have a repossession on your credit report, you’ll have a harder time securing another car loan. Lenders are likely to consider those with a previous repossession as high-risk.  

How to rebuild credit after a vehicle repossession

Car repossession, while incredibly stressful and damaging, is an event you can recover from. There are steps you can take to rebuild your credit.  

Firstly, you should ensure you pay any outstanding debt from your car loan. If the lender does not fully recover the outstanding balance of the loan from selling the vehicle then you may have to make up the difference. Prioritizing paying this debt will help prevent your credit from being further damaged. 

If you are unable to pay the shortfall on the vehicle, you should consider seeking help from a professional and speak with a Licensed Insolvency Trustee. 

Car repossession and your financial health

Having a car repossessed is often a sign of larger financial problems. Someone who has their car taken from them may have trouble keeping up with other bills as well. If this has happened to you, or you’re worried it might, talking to one of BDO’s Licensed Insolvency Trustees is a great way to get yourself back on track financially.  

During a free consultation, a BDO Licensed Insolvency Trustee will go over your financial situation and recommend the best option for you to regain control of your finances.  

Do you have more questions?

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February 8, 2023

What happens before, during and after a car repossession?

What happens when your car gets repossessed? See your options for best handling this situation and how to avoid it in the first place. 

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