When you take a secured loan, you risk losing the collateral if you are unable to repay the debt. In technical terms, this is known as repossession. Most people use things like home, car, or property as collateral. But what most people are not aware of is the fact that repossession can leave behind a negative impact on their credit history. This can cause damage to their credit score and hamper their chances of getting credit in the future. That is why it is important to have knowledge about repossession and what you can do when faced with such a situation. Here are a few essential things to know about repossession:
What does repossession exactly mean?
Repossession means the creditor reclaims the ownership or takes possession of a property or asset for which you are not able to pay the debt amount. Cars are among the most common assets that are involved in repossession. However, it can be jewelry, property, or any other tangible asset that can be auctioned or sold off in order to repay the debt amount.
How does the repossession procedure take place?
As per the rulebook, the creditor can claim repossession of the collateral tied to the loan as soon as the credit account steps into delinquency. The most common process followed in repossession is that the creditor contacts a third party or agency to get hold of the collateral. For instance, if you take a secured loan against your car and are unable to make payments for the same, your creditor can engage a company that deals in auto repossessions to get the job done. Remember that your lender does not need to attain a court order to begin the repossession procedure. They can take action no sooner than you miss a single payment.
Is it difficult to reverse the repossession scenario?
Once your creditor reclaims a property, it can be difficult for you to reverse the scenario and get back your property. However, that doesn’t mean you should give up without trying. You can always ask your lender if there is a way out for you to get back the property or asset. Often banks or repossession companies allow consumers to get back their property if they are able to clear off the outstanding debt before the property is sold off.
How long does repossession stay on your credit report?
Repossessions leave a mark on your credit history for at least seven years. In the initial stages, this can have a big impact on your credit score. But the situation improves as time passes. After a period of seven years, this whole part is wiped out of your credit history. But the worst part is till it stays on your credit history, getting further credit can be an issue for you.
How to protect your property?
When faced with a loan default situation, you need to take immediate action in order to stop the repossession of your property. The first thing to do is to contact a lawyer and get complete information about repossession. Next, contact your creditor before you miss paying an installment of the loan. Talk to your creditor and try to come to a settlement so that your account remains current. Have a frank discussion with your creditor and inform them when you will be able to pay the next installment and what time you will need to get back to the track.
Most lenders would agree to some sort of payment arrangement rather than go straight for repossession. However, it all depends on how your creditor reacts to the whole situation. So, be prepared to hear a negative answer as well.
How can a lawyer help you?
Repossession laws differ from one state to another. The best way to know about the laws and regulations related to repossession in your state is to talk to an experienced lawyer who is well-versed with the same. It is essential to have knowledge about the laws in order to protect your rights. For instance, a repossession agency can reclaim your car but not the things inside the vehicle. Also, they can’t damage your property in the process. Suppose your vehicle is locked inside a garage. The agency doesn’t have the right to break down the garage door in order to get possession of your car. In case you feel that the repossession agency is violating your rights, you need to contact your lawyer immediately and take action against them.