Car repo refers to having your car repossessed by the bank. Banks have the ability to repo your car if you fail to live up to your loan obligations. The repossession of cars is a hot topic. Indeed, this topic generates quite a few consumer law questions on this site. This article describes the repo process for cars.

Car Title Creates Security Interest

A bank can repossess your car if they have a security interest in the car. Banks typically take a security interest in a car when the bank makes the car loan. Banks do this by noting their interest on the certificate title for the car. The certificate of title is filed with the< state. This certificate creates a lien in favor of the bank for the amount of the loan. Your car is then the collateral for the loan.

When Default Occurs

There are a number of ways you can default on your car loan. Default typically involves failing to make timely payments. Default may also occur if you violate other terms of the car loan. For example, failing to provide proof of adequate car insurance spelled out in the loan agreement may result in you defaulting on your car loan.

Car Repo: the Banks Remedy

State law provides several remedies for banks when you default on your car loan. When a default occurs, the bank can bring a claim against you (or the car) in state court or simply repo the car.

Banks often hire third party companies to repo cars from their delinquent borrowers. These third party repo companies have the right to take possession of the car.

State laws vary, but generally the repo company personnel or bank cannot “breach the peace” when repossessing your car. This generally means the repo company personnel must be discrete when repossessing the car. This also may mean the repo company personnel or bank cannot forcibly enter private property or move private property (such as gates, fences, or other cars) to take the car they are trying to repo. Moreover, in most states, the repo companies do not even have to notify the borrower that they intend to repo the car.

After Your Car is Repoed

If your car is seized, it usually must be kept by the bank in satisfaction of your debt or sold and the proceeds applied to your outstanding loan balance. Reasonable costs for the repo are also deducted from the sale proceeds. You are still liable for any amount remaining on your loan after the sales proceeds and costs are credited to your loan. You are generally entitled to reasonable notice of the time and manner of the sale. In some states, you may have the right to buy the car first or catch up on any late payments after the repo has taken place. The later course of action is referred to as “redeeming” your car loan.

Before Your Car is Repoed

Having a car repoed can be embarrassing and it can damage your credit. Banks often lose money when cars are repossessed. Thus, your bank may be inclined to work with you before it attempts to repo your car. Being proactive and contacting the bank before your bank repos your car may prevent your car from being repossessed in the first place.