Definition

• Repossession means that a lender takes back your collateral, often a vehicle, because you have stopped repaying the loan. Often it is an involuntary action. The Federal Trade Commission explains that lenders usually have the right to send someone to seize your car, even if it requires going on to private property. This type of repossession incurs extra costs for which you are liable. You can prevent this by voluntarily giving the vehicle to the lender once you realize you cannot afford it.
  
  

Effects

• A car repossession looks negative on credit reports, and the MyFICO website explains that it lowers your credit score. It remains visible to anyone who reviews your Experian, TransUnion and Equifax credit reports for seven years. The effects are the same whether your car was seized or turned over voluntarily, according to Bankrate.com columnist Don Taylor. The only advantage is that you do not rack up repossession expenses on top of the remaining loan balance.
  
  

Process

• A voluntary repossession means notifying the lender that you can no longer pay for your car and setting up a time to turn it over. The lender takes your vehicle and sells it to recoup as much of the outstanding loan balance as possible. The FTC website warns that you are liable for any difference between the owed amount and the money received from the sale. The bank or finance company can have a collection agency pursue you or sue you for repayment of that amount. The collection account or legal judgment shows up on your credit reports along with the voluntary repossession.
  
  

Prevention

• Many auto financing contracts let the lender repossess your car as soon as you miss a single payment, according to the FTC website. Lenders will sometimes work with you if you call them and explain your situation. For example, they may agree to accept one or two late payments without repossessing the car, or they may lower your payment or move the due date to a time that coincides with your paychecks. The FTC advises that you get any agreements in writing. Otherwise, you are bound by the terms of your contract no matter what the lender tells you.