Stay One Step Ahead of the Repo Man

The specter of the repo man haunts many Americans who have fallen behind in their car payments. Some even resort to sleeping in their cars to make sure they don't get towed in the middle of the night.

If you've considered bedding down in your backseat, read on.

The best way to avoid the repo man is to stop the repossession process before it starts. Repossessions are costly and can stay on your credit report for seven years. With that in mind, read "What To Do When You Can't Make Your Car Payment," to get a better idea of how to deal with your lender.

But if it's too late for that, you should know your rights in a repossession. These vary from state to state. In some states, for example, repossessions aren't permitted at all. For more information on repossession, read the Federal Trade Commission's consumer guide to vehicle repossessions.

When Repossession Can Begin

In most states, a default is all it takes for repossession to begin. After default, "the laws of most states permit the creditor to repossess your car at any time, without notice, and to come onto your property to do so," according to the Federal Trade Commission.

Realistically, though, how long does it take before the repo man has you in his sights? That depends on your payment history with the lender. If you've never missed a payment, you might not be subject to repossession immediately. But if you've been late before, your number may come up right away.

And know that if you contact the lender and are granted a 30-day extension on your payment, that means 30 days from when the payment was due (which might have been two weeks ago). It's not from the day the extension was granted.

Enter the Repo Man

Lenders usually outsource car repossession to professionals. Repo men (or, more properly, repossession agents) know all the ins and outs of getting cars back. If the borrower isn't at his last known address, they'll use "skip tracing" to find a car owner who's in default. This involves using online databases to find evasive debtors. Occasionally, they use some old-fashioned detective work in the form of door knocking or phone calling. They might even use informants — an estranged spouse looking to get even, for example — who tell repo men where to find a car.

Once the repo man locates a car, he will wait until it is left unattended and use a tow truck to repossess it. In some cases, repo men have specially modified tow trucks that can yank a car away in a minute or two.

From there, the car goes to an impound lot, where it will typically be held for 30 days to give the owner a chance to "make the loan whole" by bringing all back payments up to date (including the repossession fee) or by paying off the loan balance in full.

If the owner doesn't settle the account in time, the lender sells the car at auction, deducting the selling price and fees from the amount owed. The fees include the cost of the repossession, auction, interest and the amount owed on the loan. Odds are high that even after your car is sold at auction, you'll still owe money on it to the bank.

Check for Equity

In a rare turn of events, though, some people who have had their cars repossessed might actually have received a check from the bank — had they known the car's value.

For example, let's say your car was repossessed when you were in the fourth year of a five-year loan. If you'd made a substantial down payment, you might have equity in the vehicle and not know it. After the car was repossessed and sold at auction, the amount it brought could have been more than what you owed on the loan, even after auction and repossession fees were deducted. In short, if you'd been aware of the loan balance, you could have avoided the entire repossession by selling the car, preventing damage to your credit score. The moral of the story: Keep tabs on your car's value.

Don't Make It Harder on the Repo Man — or Yourself

There's no point in hiding your car or blocking it in with other vehicles. That's just postponing the inevitable. As one repo man said, "We use every trick in the book to get your car. We watch the house and follow you if you take the car anywhere. We'll grab it when you park, even if it is for a few minutes. I took one from a gas station when the owner went to the window to get their change.

"The harder you make it for the repo man, the more he is going to charge the bank," he said. "The bank will add this to the amount you owe, and you will eventually have to pay it."

Remove Your Personal Belongings

If you're in immediate danger of having your car repossessed, take steps to make sure you don't lose other personal property. Remove any personal items, including any aftermarket stereo equipment or other accessories. Put the original equipment back onto the vehicle or you will be billed for it. If your car is repossessed, you have the legal right to claim your personal possessions from inside the vehicle. But in some cases, personal items can vanish. The agent is supposed to store and log everything in the car, but it's no guarantee that your items will be safe.

Surrender Won't Cure the Problem

Some people avoid repossession by surrendering their cars. Several years ago, when the economy had taken a bad turn, there were stories of some car dealers who had come to work to find SUVs parked outside with the keys in the ignitions and notes on the windshield saying, "I surrender this car." Surrender avoids the repossession fee but not the balance owed or the auction fees.

Revenge Backfires

Some people facing repossession have been known to vandalize the soon-to-be-towed cars, presumably to exact some revenge on the lender by making the cars unusable. But damage only lowers the value of the car at auction, further increasing what's owed on the car.

The Best Way to Stay Ahead of the Repo Man

To recap: The best course of action is avoid making the repo man's acquaintance in the first place. As soon as you think you're going to be late with a car payment, or that you might miss it altogether, contact your lender and work out a payment plan. Whatever that plan turns out to be, it's bound to be better than repossession.