Are You a Repossession Risk?

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Repossessions are on the rise

When you can't pay on time, call your lender before it's too late

In the third quarter of 2009, the national 60-day auto delinquency rate (defined by as the ratio of auto loan borrowers 60 or more days past due) edged up to 0.81 percent, from .80 for the same quarter in 2008. TransUnion calculates the delinquency rate based on the approximately 27 million credit files in its credit-reporting system. Car loan payments that are late by 60 days are considered a precursor to vehicle repossession, because after that point it becomes unlikely that borrowers can catch up on their loans.

More repossessions are in the forecast

The increase in car loan delinquencies is a reflection of the rising unemployment rate, as well as a seasonal trend. Job losses are an obvious cause of late payments, but it’s also common for borrowers to fall behind on all kinds of credit obligations toward the end of the year, and then use income tax returns to bring debts current in the first or second quarters of the next year. For the fourth quarter of this year, forecasts that the auto delinquency rate will rise to nearly 0.9 percent, as consumers divert money to holiday spending.

Repossessions happen quickly

It’s surprising how quickly a car can be repossessed once you fall behind on payments. A lender can repossess a car without giving you advance notice and without obtaining permission to enter onto your property. So as soon as you start to have trouble making timely payments, take steps to open a line of communication with your lender.

Remember that you’re not alone

It’s hard to make ends meet today, and if you’re falling behind, re-read the first few paragraphs of this article: You are not alone. If your goal is to find a way to get current on your loan and avoid repossession, don’t let pride get in the way. Remember that your lender has plenty of other borrowers in the same boat.

Call your lender

You might be surprised at how helpful lenders can be if you bother to communicate with them rather than burying your head in the sand when money gets tight. Lenders don’t want cars, they want money. Lenders don’t relish repossessing and selling automobiles and then attempting to collect loan deficiencies from borrowers. They relish loan payments. In many cases, they will work with you to negotiate payment arrangements that will make it possible for you to keep the car. The sooner you call, the better your chances of negotiating a workable payment arrangement and the better your chances of bringing your loan current and keeping the car.

Answer the phone

For people with money problems, this can be a hard pill to swallow:  If you’re behind on payments and your lender calls, answer the phone. When you avoid calls from a lender, you leave it no choice but to repossess the car. Avoiding calls  gives your lender the impression that you are completely unconcerned about paying the debt. So if you want to keep the car and avoid having a repossession on your credit history, answer the phone and try to work something out.

Ask for what you want

It’s best to contact your lender as soon as you realize you’re going to be late with a payment. Ask for an extension of time or a late-fee waiver. Sometimes lenders will even let you skip a payment entirely if that’s what it takes you get you caught up, and tack the payment onto the end of the loan term. Your chances of getting what you want are best if you’ve been paying on the loan for a while without problems; but if you have recurring difficulties, don’t hesitate to call the lender again. Whatever your situation, an open line of communication is the best tactic.

Honor your payment arrangement

If a lender gives you extra time to pay, do everything in your power to honor the arrangement. If late-payment problems recur, your lender will be more willing to continue working with you if you honored your agreement the first time. With that in mind, when you make payment arrangements with a lender, don’t agree to a date or amount that you aren’t sure will work. If you have doubts, don’t just agree to whatever is offered in order to get off the phone. Tell the lender what will work for you and why, and ask for what you need.

Don’t panic

Technically speaking, an auto lender can repossess a vehicle the minute you’re late on a payment, but they have no motivation to do that. If you’re in communication with a lender, it’s likely that they won’t repossess until you’ve missed a few payments and it seems that you’re stalling instead of making a genuine effort to pay

Surrender the vehicle if necessary

If you’re continually behind on car loan payments and unable to catch up or stay caught up, it may be time to take a close look at your financial situation and make a tough decision. If you cannot afford the payments on the car you’re driving, it’s better to contact the lender and make arrangements to voluntarily surrender the vehicle than it is to have a tow truck show up at your home in the middle of the night.   Surrendering a vehicle is easier to explain to the next auto loan lender and less damaging to your credit report than repeated late payments culminating in repossession.

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