What Is Repossession and How Does It Work?

Highlights:

• Repossession occurs when your lender seizes an asset that's tied to a secured loan.
• Repossession can occur with different assets, like vehicles, furniture, jewelry and electronics.
• If you're worried about repossession, reach out to your lender about potential options.

It's important to pay your loan payments on time. But sometimes, you may fall behind. This can damage your credit history and credit scores. But if your loan includes an asset, such as a car, your lender may have the right to repossess your property. Repossession can happen with little warning. Learn what repossession is, how to avoid it, and what to do if repossession happens to you.

What is repossession?

Some forms of credit, like a car loan, include a physical asset to secure what you borrow. Repossession happens when your lender seizes this asset because you did not pay what you owe. Lenders can repossess any property tied to a loan or line of credit. This includes boats, motorcycles and other vehicles, furniture, jewelry and electronics.

Lenders have the right to repossess an asset after your credit account goes into default. Default means a borrower misses a loan payment or makes late payments. But, most repossessions happen only when payment is 90 days, or more, past due. Here is what the repossession process looks like.

1. Reclaim the collateral. Lenders may use a wide range of tactics to reclaim your collateral.
2. Sell the reclaimed asset. Once they have the asset, your lender will attempt to sell it to recoup the unpaid part of your debt. Depending on your state, you may receive notice of the sale. You may have the opportunity to bid on your repossessed property. If the sale doesn't provide enough cash to cover your unpaid debt, you may need to pay any remaining balance. You're also responsible for expenses related to recovering the collateral. This may include the cost to hire a repossession agent, as well as towing and vehicle storage fees.

What are the types of repossession?

Repossessions may be voluntary or involuntary.

• Involuntary repossession. These occur when the lender seizes your collateral by force. This usually happens through a repossession agent. You will receive little to no warning that this will occur.
• Voluntary repossession. This is when you arrange to surrender your secured collateral to your lender. Voluntary repossession often allows you to avoid the stress of waiting for a third party. It also may help you avoid some of the fees associated with an involuntary repossession. Certain lenders may see this as a positive. It shows a willingness to work with your past lenders to resolve a default.

How does repossession affect your credit?

If a lender repossesses your collateral, your credit scores can drop. Your lender will report the repossessions to the nationwide credit reporting agencies (NCRAs). Once they're recorded the repossession on your credit reports, they can impact your credit scores for up to seven years. Before your lender repossesses your asset, you may miss a payment or default on a loan. These credit behaviors can also show up on your credit reports.

How can you avoid repossession?

Repossession is not always inevitable, even if you're having trouble making payments. Reach out to your lender before your loan defaults. Many lenders can work with you to create repayment plans. Work with your lender to revise the terms of your loan. Remember to secure a copy of your new terms in writing.

It's not always possible to evade repossession, especially once you default. But, there are actions you can take to reduce the impacts.

• Never hide your property from a repossession agent. The longer it takes to recover the asset, the more you may owe your lender in repossession fees. Plus, if a lender can't locate your collateral they may get a court order for you to turn it over.
• Consult with a professional. Repossession laws vary by state, so it's essential to know your rights. Reach out to an attorney to help you understand the laws and procedures where you live.
• Work on improving your credit scores after repossession. A repossession can remain on your credit reports for up to seven years. But, you can take steps to help your credit scores recover over time. Make debt payments on time and keep any credit card balances under control.

How can Equifax^® help me after a repossession?

After a repossession, it's a good idea to review your credit reports and credit scores often. With Equifax Complete™ Premier, you can track changes to your Equifax credit report. You can also receive alerts if your personal information is at risk of being on the dark web. Repossessions can be a headache, but there are steps you can take to make the process easier.