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When You Can’t Make Your Vehicle Payments

If you find yourself unable to make your vehicle payments, you’ll want to act quickly. In most states, if you miss a payment, whether you have bought or leased the vehicle, the lender has the right to repossess it almost immediately.

Here are some strategies to consider when your vehicle payments become too much, including what to do if it is repossessed.

Negotiating With the Lender

If you’ve missed a payment but the lender hasn’t repossessed the vehicle or declared you in default, or if you’re current on your payments but know you won’t be able to make them for a couple of months, call the lender and ask if it’s possible to get an extension of your agreement. An extension lets you skip a few payments now and have them tacked on at the end of the agreement. Usually, to get an extension the following must be true:

  • your purchase or lease agreement is not considered in default
  • you have made at least six payments under your agreement, and
  • you agree to pay a fee for the extension — fees vary among the various lenders and dealers; you may be charged a flat fee, such as $50, you may be charged a percentage (often around one percent) of the outstanding balance or you may be required to pay up to one month’s worth of interest.

If the lender is not willing to grant you an extension, he may rewrite the agreement to reduce your monthly payments. Occasionally, you can get a reduction in the interest rate. More often, however, you are simply given a longer time to pay what you owe. This will increase the total interest you will pay.

Getting Out of Your Purchase Agreement

If your agreement is for the purchase of the vehicle, as opposed to leasing it, and you know you won’t be able to make your payments for several months, your best bet is to try to get out of the agreement. There are two ways you can accomplish this. The best idea is to sell the vehicle on your own. The worst idea is to give the vehicle back to the lender — a sort of voluntary repossession.

Selling on Your Own.

When you sell a vehicle without having the “pink slip” (until the vehicle is paid for in full, the motor vehicle department keeps the pink slip) you will have to get the lender to sign off on the sale. If the vehicle is in good condition, you can probably get top dollar for it — at least the top dollar that the vehicle is worth. If the sales amount doesn’t cover the total amount you still owe the lender, you may have to come up with the difference before the lender agrees to the deal. If you’re flat broke, out of work and lacking in any assets, the lender may sign off and waive the balance owed.

Giving the Vehicle Back.

If you’re inclined to just give the vehicle back to the lender, think again.

Giving the vehicle back doesn’t end your obligation. The lender sells the vehicle at an auction, where it is unlikely to bring in even half of what it is worth (it is mostly used vehicle dealers who attend auctions and they have a motive to keep the bids very low). The difference between what you still owed the lender when you returned the vehicle and the amount brought in at the auction is called a deficiency. It’s usually several thousands of dollars. And you are liable for it.

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Getting Out of Your Lease

Over one-third of new vehicle drivers lease, rather than purchase, their vehicles. Although leasing isn’t for everyone, some people swear by it for three reasons:

  • Lease payments are lower than loan payments for the same vehicle.
  • Leasing gives you the chance to drive a more expensive vehicle than you could afford to buy.
  • If you like to drive a new vehicle every few years, you will pay much less by leasing rather than buying.

But leasing has serious disadvantages.

First, if you continually lease your vehicles, you will have never-ending vehicle payments.

Second, if you decide to buy the vehicle at the lease end, you’ll pay several thousands of dollars more than if you had bought initially.

Third, most leases charge you as much as 25 cents a mile if you exceed the annual limit — usually between 12,000 and 15,000 miles. If you do extensive driving, you shouldn’t lease.

Fourth, not all leasing costs are disclosed up front. While a federal law called the Consumer Leasing Act requires lease agreements to include a statement of costs, many lease agreements are ambiguously drafted with key provisions buried in the fine print. And the law does not obligate a dealer to disclose the interest rate that’s been built into your payments. To find out the interest rate on a lease, you will have to ask the dealer for something called the leasing factor. Multiply that factor by 24 and you’ll get the approximate interest rate.

Fifth, getting out of your lease can cost you a bundle. If you want to cancel your lease, look carefully at the provision describing what happens if you default or want to terminate the lease early. The provision probably states that you’ll owe an amount of money based on a given formula. If you were to calculate the sum, you’d find that it was several thousands of dollars. It’s really nothing other than a penalty for breaking your agreement with the dealer.

The Consumer Leasing Act gives you the right to cancel the lease if the termination formula is so complex that you can’t easily figure out how much you owe. But this will be hard for you to assert with success. Lawyers for vehicle manufacturers have rewritten lease contracts to avoid most of the ambiguities because of successful consumer lawsuits. You may not like the amount you come up with, but it shouldn’t be all that hard to figure out what the amount is.

But maybe the dealer used an old lease agreement or added some terminology making the termination formula too complicated for you to figure out what you owe. In that case, write to the dealer stating that you want to terminate the lease early. State further that the termination provision of the lease agreement is ambiguous and that you know you are entitled to sue for damages because of the dealer’s failure to use a reasonable formula. Finally, state that you are willing to waive your right to sue for those damages if the dealer will waive the balance you owe. It’s unlikely that the dealer would concede 100 percent of the early termination penalty, but he may be willing to negotiate with you to reduce the amount you must pay or at least to let you pay it off over time.

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If the Vehicle is Repossessed

In most states, your vehicle can be taken one minute after midnight the day after your payment was due — without any warning. In about a dozen states, the lender must send you notice that you are in default of your loan or lease agreement and give you a very short period of time to make up the missed payments before grabbing your vehicle.

Despite what you might have seen at the movies (remember the cult film Repo Man?) laws do regulate how vehicle repossessions are to take place. A repo man can use a duplicate key or hotwire your vehicle.

Furthermore, he can take your vehicle from your carport or unlocked garage. It’s illegal to break into a locked garage. The repo man knows that people avoiding repossession tend to park their vehicles within about three to five blocks from their home. Repo men find vehicles quickly.

Once your vehicle is taken, you usually will have a very short period of time to redeem it, that is, get it back by paying the entire balance due. The lender or dealer may let you redeem the vehicle by reinstating the original contract, as long as you make up the missed payments, late fees and the cost of the repossession and storage.

The lender or dealer will probably not let you reinstate the contract if any of the following are true:

  • you’ve had the agreement reinstated in the past
  • you lied on your credit application
  • you hid the property to try and avoid the repossession
  • you haven’t taken good care of the vehicle, or
  • you were violent with the repo man

The lender or dealer must usually send you a notice of your right to redeem the vehicle. If you don’t redeem it in the allowed time, the lender or dealer may sell it at a used vehicle auction, where it will bring in maybe one-third or one-half of its value. And you’re still liable for the difference between what you still owe and what the vehicle sells for unless you can prove any of the following (often as a defense in a lawsuit where the lender or dealer sues you for the deficiency):

  • the lender or dealer routinely accepted late payments from you and then repossessed without warning
  • you were not told of your right to redeem
  • you weren’t told of the date and place of the auction sale, or
  • the sale wasn’t conducted in a “commercially reasonable” manner. No one really knows what this means and courts generally rule that auction sales of repossessed vehicles were done in a reasonable manner for that industry.

If your vehicle is repossessed, do what you can to redeem it, if for no other reason than to sell it yourself and avoid the deficiency. If you wind up owing a deficiency, try negotiating for a reduction of the amount or an agreement to pay it off over time.

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Amanda Miller


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