Table of Contents

    Debt Consolidation To Avoid Car Repossession

    Avoid Car Repossession

    How Repossession Works

    Repossession occurs when the lender or leasing company takes possession of a vehicle away from a borrower with a poor track record. This typically happens when the borrower is several payments behind and will sometimes occur without warning. In recent years, many states have instituted laws that force lenders to inform borrowers that they are behind on their payments and the consequences. That being said, they are under no obligation to inform the borrower when or where their vehicle will be repossessed.

    Repossession is typically carried out by a third party tow-truck service, and in some cases, lenders can remotely disable an individual's vehicle electronically. This remote disable feature stops the vehicle from turning on.

    When the lender repossesses a vehicle, they typically sell it to recuperate any losses they may have incurred as a result of the defaulted loan. In an effort to protect consumers, the law requires creditors to sell any repossessed vehicle at fair market value. If the lender was to sell the vehicle at a price lower than market value, the borrower would still be required to pay off the remaining balance.

    How Consolidation Loans Can Help

    Once their vehicle is repossessed, the individual has very few options to get it back. One option is to redeem the loan. This means paying off the entire loan, including all past-due payments as well as any costs the lender incurred from the repossession.

    The downside to this option is that if the person was not able to make their payments in the first place, they likely do not have the available funds to pay off the loan in its entirety. Anyone in this situation may consider a debt consolidation loan as a solution.

    When a borrower consolidates their debt, they use a consolidation loan to pay off all outstanding debts. The loan usually carries a lower interest rate than their current debts and leaves them with a single monthly payment to remember.  

    Assuming their credit score is sufficient, a delinquent borrower can use a consolidation loan to redeem their vehicle loan. This allows them to redeem their loan and take full ownership of the vehicle. The upside to this strategy is that most loans are unsecured, meaning should the borrower default, there is no asset for the lender to seize. 

    Other Methods

    Redeeming a car loan requires the borrower to come up with enough money to pay off the remaining balance on the debt. This is simply not an option for many people, especially for those who do not qualify for a consolidation loan. Luckily, a few options still exist.


    Reinstating a loan means paying off all past-due payments along with any extra costs associated with repossession. By doing this, the borrower gets their vehicle back and puts them in more or less the same situation they were in before the repossession.

    For many people, reinstating the loan is not a long term solution. They might be able to come up with the money to cancel all past-due payments, but it does nothing to fix their financial situation. Those who have successfully reinstated their loan should look at debt consolidation to lower their monthly payments.


    A Chapter 7 bankruptcy filing will cause an ‘automatic stay’ on all of the filer's debts. This will, temporary, stop any repossession efforts a lender is taking against the borrower's vehicle. In some cases, bankruptcy may allow the filing party to maintain at least one personal vehicle, but this matter may be complicated if the vehicle was purchased through a secured loan, which most vehicles are. For the majority of individuals, bankruptcy is not a long term solution to repossession.


    Consolidation loans are one of the best options available for individuals who have defaulted, or at risk of defaulting on their car loans. Apart from helping individuals redeem their car loan, it also transforms the original secured debt into an unsecured debt. Ultimately, this delivers the best outcome for the borrower and lender.