Are you facing a possible car repossession? This car repossessions guide is all for you!

One of the most valuable assets we can own is a car. Not just the inherent value of the car, but what the car allows us to do, such as travel to and from work to put food on the table for our families. 

If you have missed recent vehicle finance payments, you may be wondering what lenders can do next – and what you can do today. Let’s get straight into the details about repossessions and answer related questions to boot. 

If you’re looking to get out of your car finance agreement, read here.

What happens when you have car finance with defaults?

It is estimated that around 80% of all new cars bought are with a type of Hire Purchase agreement. This is a contract where the buyer will purchase the vehicle by making monthly payments, leasing it in the meantime. The companies providing these agreements should be authorised and regulated by the Financial Conduct Authority.  

So, what can happen if you have car finance and default on your repayments?

The vehicle remains the property of the finance provider, but they must follow a series of steps before they can look to complete a car repossession. You won’t have the vehicle repossessed overnight. 

These debt collection steps are:

  1. Reminder notice

When you first miss a payment, the lender will write to notify you that a payment was missed. They will ask you to pay quickly. The letter may include some scary threats or talk of legal action. 

  1. Arrears notice

If you miss a second repayment, the hire purchase finance provider can then send a notice of arrears. This is a letter informing you that you are in arrears and should contact them to arrange repayments. They can only send these letters every six months, so you won’t be bombarded with them. 

  1. Default notice

If you are still not forthcoming to negotiate a solution, they can then send a default notice and inform you that they will take legal action. The default is applied to your credit file.

They may then take legal action to recover what you owe and the car – more on this later. 

  1. Agreement termination

Lenders may then terminate the agreement and attempt to take repossession of the vehicle. The company remains the legal owner of the vehicle – and they may or may not need a court order to take back possession. 

Read on!

Your car finance repossession rights

If you are in Scotland, the vehicle finance provider must always get a court order to take repossession of the vehicle.

However, if the company is registered in England or Wales, the repossession may or may not require a court order first, depending on how much of the agreement has already been cleared. 

If you have repaid less than one-third of the value of the credit agreement – including interest and fees –  the vehicle can be repossessed without the need for a court order. You must surrender the vehicle in this situation.

But if more than a third of the agreement has already been cleared, the lender cannot repossess the vehicle without getting a court order first. 

If they do this then the debtor can go to the courts and request that they are no longer liable for the debt. Or even better, that you are refunded everything you have paid to the car finance provider so far. 

What happens to the debt when a car is repossessed?

If your finance car is repossessed, it will be sold at a car repossession auction. The money generated for vehicles at these auctions is typically below the market value.

This is bad news for the debtor because the funds raised are used towards clearing the remaining balance of the finance agreement. 

Any shortfall between the sale value and the remaining amount on the agreement becomes a debt that must be paid by the consumer. The car finance provider can then apply to the courts for a County Court Judgement that requests you pay.

If your circumstances mean you are unable to pay, you may be able to arrange an affordable payment plan. 

If no agreement is made, they could then try to enforce the remaining debt with bailiffs or an attachment of earnings order.

How many missed payments before a car is repossessed?

Based on the steps included in the strict debt collection process, you will need to miss at least two payments before the lender can even consider repossessing the vehicle. 

However, it is more likely you will have to miss more than this before it gets to this stage, especially if a legal order is required. 

You cannot sell the vehicle to make future payments because you are not the legal owner. 

How to avoid a car repossession 

There is a way to avoid your car on finance being repossessed and any subsequent debt, known as a voluntary termination.

Under Section 99 of the Consumer Credit Act, consumers are allowed to voluntarily terminate their agreement if they are unable to repay. There may be a price to pay for the termination – or not – depending on how much of the agreement has already been cleared.

In most cases, the buyer will need to have repaid 50% of the agreement’s value (including interest and charges). If you have paid less than this, you will need to make up the difference. For example, if the contract is worth £20,000 (including interest costs) and you have paid off £9,000 so far, you may be asked to pay an additional £1,000. 

You may benefit from taking out a loan to use this option, but only if the loans provider offers better repayment terms. Use a registered charity for help deciding if a loan for this reason is a good idea. 

Returning the vehicle

When you hand back the vehicle using Section 99, make sure you take plenty of clear photos of the vehicle. This is to prove the condition it was returned. Some wear and tear is expected, but lenders may try to claw more from you by claiming scuffs, scratches and damage. 

You may be asked to drive it to a registered office, but this must be a reasonable distance from your home. Alternatively, they can do a collection from your home. There must be no charge for a collection service. 

Search for a free, professional and personal debt advice service!

A professional team of helpers are waiting to support you through vehicle finance defaults and potential car repossession. If you are worrying that your vehicle will be repossessed, look no further than a free advice charity. 

These charities are authorised and regulated to operate with unrivalled support for debtors. 

Their services are second-to-none – we even have a website guide so you only choose the best charity for you!

About the author

Scott Nelson

Scott Nelson is a financial services expert, with over 10 years’ experience in the industry, including 6 years in FCA regulated companies. Read more
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