How do repossessions work?

How Repossessions Work

Milad Hassibi April 10, 2018

There is no doubt that a repossession can leave a big mark on your credit score and credit report. However, there seems to be mass confusion on the effects of repossession. In total, there are 4 main steps that you will go through in the repossession process. These 4 steps can possibly lower your score by 100 points or even more, depending on various circumstances.


Defaulting means that you have consistently failed to make the required payments on your vehicle. Once you have fully defaulted on the loan, your creditor/lender has a right to repossess the vehicle. All financing contracts vary, so a lender can repossess your car after only 1 missed payment or 5 missed payments.

This is usually automatically reported to all 3 credit bureaus as well (Experian, Equifax, and TransUnion). The further behind on payments you are, the more damage you will get on your credit score.


Once your lender hires a towing company to repossess your vehicle, they will issue arepossessions and how they work
“repossession code” which can indicate how your car was repossessed and under what circumstances.

Code 8A means that the repossession was voluntary, code 01 means that the repossession was paid and agreed to, and lastly code 08 is repossession without consent. Your credit will still take significant damage regardless of what code your vehicle was repossessed under.


After your car has been repossessed by the lender, the car will typically will be sent to a local auction service. The lender will typically auction off the car to the highest bidder at a reasonable market value in order to recoup the loan balance they provided you.

In many cases, if the vehicle sells for below the initial loan amount, the lender may have the right to come after you for the difference in the auction sale price and the loan amount you took out.

If you are unable to repay the difference in auction price and the loan amount, the lender can send your information to a collection agency that will attempt to constantly harass you until you pay. Once the lender contacts the collection agency, your credit score will take another deep hit.


As a last resort, if the lender is unable to collect, you may be sued by the lender for the difference in auction sale price and the loan amount.

If the judge rules against you, the lender could also be granted the right to garnish your wages until the difference is paid off. Again, this will appear on your credit report.

If you are on the verge of having your car repossessed, be sure to be vocal and speak to your lender frequently about the various paths you can take in order to avoid repossession of your vehicle.

Often times, lenders view repossessions as a huge hassle and unnecessary expense, so you may be able to come to an agreement on how you can repay the vehicle.

Final Note

Having a repossession on your credit history can make it hard to get a car. If you are still searching for an auto loan after a repossession, CrediReady can help. Our nationwide network of trusted lenders and dealers work with buyers in all credit situations. Take a moment to complete our free no-obligation form and get the financing you need today!

Free Credit Score

Get your free credit score now! Get a copy of your most recent credit score.
get your free score

Auto Insurance

Get your free insurance quote now! Save big on auto insurance today!
get your free quote

Vehicle Warranty

Protect your vehicle and you could save thousands on auto repairs.
get your free quote