Every economy will produce repossessed cars, and when credit has become more difficult for consumers to acquire that can signal an increase in available repossessed cars. Whether you are facing the possibility of having your car repossessed or you are in the market for purchasing a repossessed car, it is important for you to know the facts of how cars are repossessed. Every state is going to be slightly different, but there will be some consistencies of which you can be assured, and the basics are going to be universal. Car repossession occurs when a consumer has purchased a car, and the car is the underlying collateral for the loan, with the agreement of making monthly payments of a set amount to a bank, credit union, or other credit issuing agency. The consumer then fails to comply with the agreed repayment terms and the issuing credit agency takes possession of the vehicle to recoup it's loss.

The process of repossessing a car is broadly guided by the Uniform Commercial Code, a federal law consisting of many statutes that detail the rights of the borrower - the car owner - and the rights of the issuing credit agency - the bank. However, every state will be different, though all the states will have rules addressing specific parts of the repossession process. For example, look for rules regarding the redemption period, the time owners have to become current on their loan, and the guidelines specific to selling the car. The redemption period is often called The Right To Cure under the UCC and every state has different regulations. A quick internet search using the terms "right to cure" and (your state) will provide useful information. Some states require that the owner be notified in writing before the car is sold at repossessed car auctions and still others regard the redemption period as sufficient notification of a pending sale - that is, they assume that you are aware of the time allowed to redeem your vehicle and that if that time passes then you are assuming that the car will be sold.

Aside from the broad guidelines under the UCC, it's really up to your lending institution. You will find that under your loan contract, failure to pay within specific parameters triggers a transfer of ownership. You should always be aware that your lending institution is in the business of making money. While banks are not in the business of owning and selling cars, and they really don't want anything to do with either of these processes, they will administer your account with the idea of getting their money back plus as much interest as possible, or the previously agreed to amount.

Since cars will lose their value much more quickly in the first two years of rolling off the lot, credit issuing agencies will require that the bulk of car payments go toward the interest on the loan and not the principal. This means that if the bank repossess a car during the second year of a loan that is subsequently sold for $10,000, and it's underlying loan was originally for $15,000, it's quite likely that the consumer will still owe hundreds of dollars, if not thousands to the bank. But the bank has recouped as much of it's loss as possible.

It's important to be aware of the fact that consumers can still owe money after the car has been repossessed and sold at a repossessed car auction. This is most common with loans that are early in their maturity. The issuing credit agency will front load the loan with interest payments, in other words, consumers will pay much more in interest during the first few months of the loan than they will pay during the last few months of the loan. This is done with precisely the possibility of repossessing the car in mind.

Finally, consumers need to be aware of the fact that any repossession will have drastic consequences on their ability to acquire new credit. Whether a consumer voluntarily "turns in" a car to the bank or the bank is forced to repossess the car, the effects on the consumer are the same. If you find yourself facing repossession, call your bank. It does not want to own your car, it only wants the money you owe. If you are facing an unexpected loss of income or some unforeseen expenses, many times banks will consider your unique situation and alter the terms of your loan to accommodate your new situation. If you expect your financial circumstances to change for the better but that event is some time off, you may offer to make a balloon payment at the end of the loan in exchange for skipping some payments now. The key is to communicate with your bank. If you will remember that they only want the money that you agreed to at the loan's inception, and not to own your car, talking to them will be a lot less intimidating.