What Happens When Your Car Gets Repossessed and You Have a Loan on It?

happens-car-gets-repossessed-loan Credit: Michael Stuparyk / Contributor/Toronto Star/Getty Images

Having a vehicle repossessed does not remove the borrower's obligation for the loan. Once the lender repossesses the vehicle and sells it at auction, the finance company also has the right to sue the borrower for the remaining balance on the loan. This balance is called the deficiency balance, according to Nolo.com.

According to Nolo.com, most car loans use the vehicle as collateral on the loan. Thus, if the borrower is in default on the loan, the law gives the lender the right to repossess the car. The laws differ by state as to how the process works, but in most states, the laws permit lenders to take the car without providing any warning. The law prohibits the borrower from breaching the peace when the lender takes the car. It does not allow the lender or its agent to threaten physical violence when taking the car or to remove it from the borrower's closed garage.

Banks consider individuals with a poor credit history to be flight risks. Edmonds.com warns that such borrowers sometimes have as little as 10 days before the lender comes for the car. The repossession agents sometimes watch the borrower's home and follow the vehicle when it leaves. Once the driver parks it and leaves it unattended, they tow it to the impound yard for repossession.