How to Avoid Repossession

Generally, for short-term low-amount loans, repossession does not occur. But a large loan, such as a car loan, is an expensive risk for a lender. Often the lender will require the loan to be secured by a mortgage over the goods. If you default on the loan, the lender can seize the goods and sell them to recover the money loaned to you.

Any responsible lender would also check your ability to repay the loan. Always avoid unscrupulous lenders who have interest rates of 20% or more. These high interest rates can get you into a lot of financial trouble, and increase the possibility of loan default and repossession.

As well as non-payment or late payment you can be found to have defaulted on the loan if you have not insured the goods as required in the loan contract. Especially for a car you should always take out adequate insurance, and always ensure that you keep the cover up-to-date. A direct debit is an easy way of ensuring you are always covered. If your car is written off in an accident, and the car is uninsured, you will still be required by law to pay the loan off.

Before signing your loan contract you should read carefully all the terms and conditions and ask about anything you do not understand. If necessary, take the contract away with you and obtain legal advice. Never sign if you are not sure.

NSW law provides that you must resolve the default within 30 days of receiving a letter threatening repossession. Other states will probably be similar, but check with the relevant state authorities. If the mortgage goods are located on private property, the lender is required to gain permission from you to enter the premises, as long as around 75% or more of the loan has been repaid.

You should not ignore any correspondence you receive regarding the loan. Clarify anything you do not understand with the lender. If still unsure seek financial or legal advice as appropriate.

The best thing to do if threatened with repossession is to contact the lender to verify what you are required to pay immediately, and then make the payment by any method that the lender agrees to. Then make the rest of your payments on time. If you cannot meet the payment required to avoid repossession, try to negotiate a payment schedule with the lender. This may well prove a cheaper option for them than repossessing and selling your goods.

The lender must send you a repossession notice within 14 days of the date of your goods being repossessed. The notice must stipulate the date of repossession, the total estimated value of the goods, and any expenses incurred as a result of the repossession.

To recover your goods you must make any payments due, including arrears, and also reimburse any incurred expenses, within 21 days of the date of the notice.

Summary

• Repossession usually only occurs with large personal loans.
• Do not apply for loans that you are not confident of paying back.
• Always make payments on time, and insure your goods as required in the loan contract.
• If you receive a letter threatening repossession, comply fully with the instructions.
• If you cannot make required payments, negotiate with the lender.
• To recover repossessed goods, make all necessary payments within 21 days of the date of repossession notice.
  

Article correct at its author date: Jan 2007. Copyright Virtual Office Space, Any unauthorised reproduction of this article will be prosecuted to the full extent of the law. Credit Cards Australia.

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