Considering inflation has already hit the US market, it’s best to prepare accordingly and plan your expenses more thoroughly. This is especially true if you’re looking to buy a car in the near future.
But as all vehicles are high-price purchases, most people take loans. And, even though it’s counterintuitive, not everyone pays attention to financial management. It leads to various consequential problems and the risk of full-on vehicle repossession. So, if you find yourself in such a pinch, you might wonder how many payments you can miss before the car is taken away.
Loans And How They Work
However, before we get to repossession, let’s talk basics and look at loans in-depth. After all, you may want to know how things work from top to bottom to avoid the dreaded repo and everything that comes with missed payments.
In most cases, no one has the money to buy the car outright, and they always opt for the loan alternative. This allows you to instantly get your hands on the new ride without paying the total asking price. Instead, you deal with monthly installments or payments made to the lender.
The installments you pay come with an interest rate or a percentage of extra cash on top of the original sum that you must cover. In addition, loan agreements are legally binding and include set interest rates, the amount paid monthly, and term length (usually 24-84 months). So, if you miss payments, it’s considered a breach of contract.
Breaching The Contract And Repercussions
Breach of contract, of course, brings the possibility of your car being repossessed. That’s why you always want to ensure the terms and financial circumstances are right to take the loan. A basic rule here is not to buy an expensive vehicle if your budget can’t afford it.
If you miss your first payment, there’s something called a grace period: the lender gives you extra months to pay them back. It’s there to account for any possible financial hurdles along the way and help you out. However, what comes next after the period is over is highly unpleasant.
When you fail to make a payment during the grace period, the lender has the right to default on your loan. It results in the repo and hurts your credit score, as lenders always report to credit bureaus.
How Many Payments Can I Miss Before Repo?
After discussing everything there is to loans, you might wonder how many payments you can miss before repossession. And here, the answer is more complex, as it hangs on your relationship building with the lender.
Most won’t begin repossession until you miss three or more payments, but, as mentioned, they have the right to act after the first instance. The only solution is to try and build a positive relationship. For example, if you know you won’t be able to pay the installment, call the bank beforehand and ask for loan deferment. After all, a late payment is better than a missed one.
However, there’s one thing that should be mentioned. Lenders are not interested in actually repossessing your vehicle. They rather get the money instead of dealing with repossession agencies and accompanying fees. Banks will try to work out a mutually beneficial solution together with you unless you prove unreliable.
Summary
Getting a loan is always a matter of financial convenience. Cars are pretty expensive purchases, and not everyone has the cash to buy them outright. That is why most inevitably find a suitable lender and strike a deal.
Surprisingly enough, loans tend to fall under the impulse decisions category. People either opt for a vehicle that is out of their budget or end up in a financial hurdle and fail to pay monthly installments. All of this leads to the dreaded repossession and negatively affects their credit score.
However, the lenders are not interested in taking away the vehicle, even though they can after the first missed payment. Working with repossession agencies involves extra fees, which is something they don’t want. So, unless you miss three or more payments, you can try to work things out and build a mutually beneficial relationship.
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