When a borrower doesn’t pay back an auto lender, the lender may decide to move forward with the repossession. This is when they reclaim the vehicle that was purchased with the loan. The goal is to then sell that car again, getting the money that was still owed by the initial borrower.
But the reality is that this doesn’t always work out as smoothly as one would think. Cars lose value at an incredible rate. Many other assets will retain some value for at least a few years, but a new car drops in value as soon as someone drives it off of the lot.
So, when a lender reclaims a car and then sells it to another buyer, the lender still tends to lose money. This is why lenders often do not repossess cars after a single missed payment. They do not want to take the vehicles back if they can avoid it. Instead, they want the borrowers to continue paying the loans. That’s the only way for the lender to actually get back the money they expected. Repossessing the car is seen as the last resort when it’s clear that the person isn’t going to pay at any point in the future.
What other options are there?
This situation is certainly not ideal. Mortgage lenders may have better luck with repossessed homes in a strong housing market than companies who service auto loans have with repossessed vehicles. A house may sell today for more than it would have just a few years ago. Meanwhile, a car is almost inevitably going to move in the opposite direction, quickly hemorrhaging value as soon as it is purchased.
This makes things much more complicated, so lenders who are not being paid need to understand all of the legal options they have.