Why is a Car Repossessed?
A car is usually repossessed when a buyer fails to keep up with repayments on a secured loan, hire purchase agreement, or a personal contract purchase on a vehicle. The owner/lender will then take action using the method of repossession in order the reclaim or repossess the car.
What happens when a car is repossessed?
Failure to keep up repayments can result in the buyer’s vehicle being repossessed by the lending company. The company will send out bailiffs to retrieve the vehicle and then take steps to sue the buyer in order to recover losses. The company will often make substantial profits when recovering this money. The company will also charge the buyer for costs involved.
If you have paid less than one third of the total payments and the vehicle is parked on public ground then a hire purchase company has the legal power to repossess your vehicle without going through the lengthy procedure of obtaining a court order.
It is extremely important to read any agreement thoroughly before committing as terms may vary. Do not forget to always read the small print. Remember theses contracts are drawn up by clever and cunning solicitors who want to make it as difficult as possible for you to cancel the finance contract.
Below is an example scenario which happens to many people when their car is repossessed.
A) Car value £25,000
B) Deposit £5,000
C) Loan Amount £20,000
D) Repayments £5,000
E) Still Owed £15,000
F) Car Auction £8,000
G) Deficiency £7,000
A) In this example, £25,000 is the sale price for a new car.
B) The buyer puts down £5000 deposit.
C) The loan amount borrowed from the finance company is £20,000.
D) The buyer begins to make repayments, lets say for example they make £5,000 worth and then run into financial difficulty and are unable to make further payments. The lender goes ahead and repossesses the car.
E) The amount still owed to the finance company is 15,000 after the car is repossessed.
F) After repossession, the finance company opts for a quick sale through a car auction and sells the repossessed car for £8,000.
G) The Deficiency is the amount the loan company will look to recover after the car has been repossessed. In this case the defeciency amount will be £7,000.
If your car has been repossessed in this way, you can expect the loan company to chase you in order to recover the deficiency amount. you can also expect your credit rating to be affected if repayments are not made or even face bankruptcy .
A car is initially purchased “on finance”. Let us investigate the different types:
1) Normal Unsecured Loan
The buyer obtains the money in advance in order to purchase the car and then makes the repayments of this loan debt as per the agreement back to the loan company. This method of loan is available from banks, building societies and independent finance companies.
However, initially obtaining the loan is often difficult and repayments can often be high due to the lack of security on the loan. Lenders are more likely to prefer homeowners. In this case the buyer owns the vehicle outright.
2) Normal secured Loan
The buyer obtains the money in advance using an asset eg. a house as security in order to purchase the car and then makes the repayments of this loan debt as per the agreement back to the loan company. This method of loan is available from banks, building soceities and independent finance companies and repayments are cheaper than the unsecured loan. However, the lender can confiscate the asset offered as security if repayments are not made as per the schedule and in extreme cases a buyer can lose the asset which was given as security. In this case the buyer owns the vehicle outright.
3) Car Hire Purchase
The buyer of the car will pay an initial deposit, followed by a fixed amount for an agreed number of months and then the buyer will own the vehicle. This method of loan is available from banks, car dealers and loan companies and is usually easy to obtain as well as being cheaper than other types of loan. However, the lender will own the car until the agreement is fulfilled and all payments have been completed. The car cannot be sold without permission until all payments are made. Failure to pay the company’s repayments can result in a car being repossessed and then sold at a discounted price in an action. The company can then sue the buyer for any outstanding amounts owed as well as their costs.
If you are in this position, clicking on the has your car been repossessed? page can provide further information of what can be done. The car is subject to agreed annual mileage limits (the buyer will pay extra if these are exceeded). The car must also be serviced correctly and kept in good condition.
4) Personal Contract Purchase
A buyer will pay an initial deposit (up to 20% of the total value) and then an agreed number of low repayments for a period of up to 3 years. Payments will be made on a monthly basis. After this a final payment will be required to be made. This value will be agreed at the beginning of the paymentt and is known as the Guaranteed Minimum Future Value (GMFV).
Upon completion of the agreement, the car owner has a choice of 3 options, either to keep the car, give the car back, or part-exchange it for a brand new car. If the car is handed back, nothing more is owed but no part of the initial deposit or any of the payments made is refunded. If the buyer part-exchanges the car, the dealer will value it. If it’s worth more than the GMFV, that amount will be put towards the deposit on their next car. But if the car is worth less the buyer will not have to make up the shortfall. This method of loan is available from car dealers, independent finance houses, banks.
This method often has cheaper monthly payments than for other types of finance and is a convenient way of funding a new car every two to three years. However, this method is more expensive than the other types of loans mentioned above. The car purchase is subject to agreed annual mileage limits (if these limits are exceeded the buyer will be forced to pay extra). The car must also be serviced at the correct times and its condition must be maintained.