Repossession refers to what is usually the final action a finance provider will take when a customer misses multiple payments, and takes possession of an asset which was used as collateral in a finance deal.
When a loan is approved, it is done so under specific conditions; the most important of which being that the loan is paid back in monthly installments. If the customer is unable to make these repayments, this is known as defaulting. Different lenders have different rules regarding repossession, and this will be detailed in the contract between the lender and customer at the point where your loan is agreed. Some lenders will seek to repossess the car after 3 months of missed payments, and some could allow up to 6 months of defaults. However, whether your car can be repossessed depends on a few factors.
For instance, if you have paid less than a third of the value of the car before defaulting, the lender has the right to repossess the vehicle. If you’ve paid between a third and half of the value of the vehicle, you are in a much stronger position to negotiate with the lender and enter a new arrangement to pay off your debt, but it is still possible for your car to be repossessed by the lender under specific circumstances. Once you have repaid over half of the value of the car, a lender has far less power to repossess the vehicle, as you now own more of the car than the lender does.
It is important to note, however, that if you are in the situation where you are facing a repossession of your vehicle, your credit score will be negatively affected and therefore you will find it harder to obtain credit in the future. Therefore it is important to act quickly and talk to your lender as soon as you think you might miss a loan repayment.
To find out more about how your credit score can be affected by missed payments or repossessions, visit our credit clinic.
"Repossession is generally used to refer to a financial institution taking back an object that was either used as collateral or rented or leased in a transaction. Repossession is a "self-help" type of action in which the party having right of ownership of the property in question takes the property back from the party having right of possession without invoking court proceedings."
Source: Repossession at Wikipedia.org
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