As the economic slump continues, many people are struggling to make ends meet. And unfortunately, vehicle repossessions are on the rise.
The number of repossessed vehicles jumped 12 percent to 1.67 million nationally in 2008 and is expected to increase by another five percent this year, according to Manheim Consulting, which publishes a monthly Used Car Value Index for financial institutions.
Having a vehicle repossessed not only hinders mobility, but also can jeopardize your ability to get loans or credit cards for up to seven years because of the negative impact on your credit rating. Another possible consequence is that repossessed cars may be resold at a discounted price at auction. The difference between what you owe and what the vehicle resells for is called a “deficiency.”
Deficiencies can also include the costs incurred involving the repossession of the car. Your lender can sue you to reclaim the deficiency of your loan, which could obligate you to continue paying them for a car you don’t use or own. A deficiency judgment could also lead to garnished pay checks, bank accounts, or tax returns if you don’t make voluntary payments.
Keep in mind a few basic tips to help avoid a visit from the repo man:
Cut costs elsewhere
For many people a car is a necessity for getting to work, the grocery store or school. Consider expenses you can afford to do without in order to make your car payment: cable television, eating out, cigarettes and new clothes are just a few examples.
Contact your lender
The worst thing to do when falling behind on a car payment is bury your head in the sand and ignore the problem. According to the American Financial Services Association, auto repossessions cost creditors about $8,000. So, the best-case scenario for both you and your lender is to keep you in your car and make payments. To that end, lenders will often work with troubled borrowers to develop more agreeable payment plans.
Some possible options, according to AFSA, are loan refinancing, extending or deferring payments, changing payment due dates, and waiving fees. So contact your lender as soon as you know there may be a problem in making your monthly payment to see if you can work something out.
Sell the car on your own
If you can’t work out a deal with your creditor and can’t afford to continue your payments, consider selling the car. Determine what your payoff amount is and check the vehicle’s resell value with Edmunds or Kelley Blue Book. If you owe less than what the car is worth, sell the car to pay off the loan. If you owe more than the car’s worth, you may have to come up with some extra cash to pay off the loan or see if the lender will accept a short sale, but both are better alternatives than repossession.
Do your research before enlisting any debt management help
Some businesses advertise that they specialize in assisting with repo prevention. Be extremely wary of sales pitches that require fees up front, and always check out the company with your local Better Business Bureau. Consider enlisting the help of a credit counseling agency as they offer inexpensive, and in some cases free, guidance on how to manage money. You can find a credit counseling agency near you through the National Foundation for Credit Counseling — the nation’s largest and longest-serving nonprofit credit counseling network — at www.nfcc.org or by calling 1-800-388-2227.
Tim Burns is the Public Affairs Director for the Better Business Bureau Serving Eastern Michigan (www.bbb.org). The BBB is a non-profit organization that works to promote trust and prevent fraud and unethical business practices in the marketplace.
