How Car Repossession Works
Just the idea of having your possessions taken away is scary. We’ve all seen those videos online or heard stories of people having their cars and things taken away.
How does car repossession work in Australia? How can a lender (financial institution) take your car away?
Here’s how car repossession works…
Can lenders actually take cars away?
Yes. Absolutely they can. Of course, there are laws protecting borrowers which detail the conditions and the steps lenders must take to repossess a car.
Usually, cars are ‘secured’ to the loans they’re bought with. Having a secured car loan increases your chances of approval and a lower interest rate. If you can’t or won’t pay, the lender can take the car back – this is a car repossession. The lender can sell the car to recuperate lost money. It’s in these situations that cars can be repossessed.
You said ‘usually’ – when can cars be bought with loans that aren’t secured to them?
This is when a car is bought with a personal loan. The risk to the lender is higher because they won’t be able to repossess the car. As a result, the interest rates are often higher. Always do what you can to keep interest rates low.
What’s the process of car repossession?
The first step on the road to repossession is defaults on loan repayments. This means not paying the loan back. Co-borrowers or guarantors can be called upon to pay too.
When a default occurs, the lender will contact the borrower to let them know.
TIP: If you receive a call, sms, email or letter advising you of a default – act immediately.
As a borrower, you can organise a ‘hardship plan’ if you’re struggling to pay. This means going on a new reduced payment plan to get you through tough times. Lenders may not repossess your car if you’re on a hardship plan.
Additionally, lenders aren’t the enemy – they want to help their clients. Lenders understand that tough times crop up in life.
If the borrower doesn’t contact the lender…
This is when things get more serious. Lenders can and will put defaults on a borrower’s credit file. Defaults remain on credit files for a period of time and result in a lower credit score and difficulty getting finance in the future.
After 3 months of defaults and no contact:
Loan payments don’t all happen at the same frequency. They can be weekly, fortnightly or monthly. Lenders often wait for defaults to build up for around three months before moving to the next step.
This means a borrower has stopped paying for 3+ months without any reason and needs to get out of a bad debt.
The lender can now inform the borrower that they have 30 days to pay the overdue amount or they’ll begin actions to repossess the vehicle.
Actions to repossess the vehicle…
Different lenders have different procedures. Usually, after advising (or attempting to advise) the borrower that they have 30 days to pay the amount owing, lenders will contact references.
References are adults who know the borrower, not living together and not living with the borrower. Their contact details are submitted with the loan application.
If the references don’t respond or provide insufficient information, the lender may try to contact the borrower via their place of employment.
Lenders don’t want to repossess cars. Ideally, they want payment as per the loan contracts.
After all options are exhausted…
Lenders have no choice but to locate the vehicle and, if needed, put it on a truck and execute the repossession.
The lender then notifies the borrower of the repossession and must wait 21 days before selling the vehicle. However, the vehicle can remain in the lender’s possession during the 21 days or until payment is made.
Car repossession is expensive. Lenders have to pay someone’s time to locate the vehicle, transport it to an auction or sale location and possibly pay for repairs / key replacement.
Fortunately, in Australia this is rare. We have laws and procedures to allow borrowers every chance to pay or organise payment as best they can.
When can’t lenders repossess cars?
If a borrower owes less than $10,000 or less than 25% – whichever is lower. In these situations, the lender will need a court order.
The vehicle is parked on your private property. In this case, the lender – needs written consent to enter your property to take the car. Some lenders require this as part of the loan contract.
If they don’t have written consent or you don’t own the property (ie: you’re renting), the lender will need a court order. This is ultimately the end of the road and a matter for the courts.
Sounds scary but it’s easy to avoid…
If you receive a default notice or even fear receiving one, call your lender. They deal with clients and repayments all day and can find a solution for you. Contacting your lender and explaining your situation will avoid repossessions and likely avoid a default. They’ll be able to put you on a temporary payment plan.
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