Car Repossession: Redemption v. Reinstatement

You might be able to get your car back after repossession by redeeming it or reinstating the loan.

If your car is repossessed, you might be able to get it back through redemption or reinstatement. Most states allow you to redeem your car (pay the full balance due, plus costs and fees). But whether you can reinstate the car loan (keep the car by bringing your loan current), depends on your car loan contract and your state's laws.

Read on to learn the difference between redemption and reinstatement after a car repossession and how each one works.

How Car Repossession Works

Typically, when you take out a loan to purchase a vehicle, the papers you sign give the car loan lender what is called a security interest in the car. The car is collateral for the loan, making the car loan lender a secured creditor. Most states permit car loan lenders to repossess your vehicle if you default on the loan agreement. (To learn more about how car repossession works, see Car Repossession Laws: An Overview.)

However, even if a secured creditor repossesses your vehicle, you still might be able to get the car back. There are two possible ways to do this—redemption or reinstatement. (To learn about ways to avoid repossession, see Options to Avoid Car Repossession.)

The Right of Redemption: Paying Off the Loan

Most states give you a right of redemption in the car. What that means is if you pay the entire outstanding balance due on the car loan, you can get the car back. The balance you would need to pay to redeem the vehicle may include extra fees and charges—including repossession and storage fees and even attorneys' fees.

The car loan lender is usually required to send you a written notice of the right to redeem the vehicle shortly after repossessing the car. The notice will include the payoff amount necessary to redeem the car. If you don't receive this notice within five days of the repossession, you should contact the lender to get the payoff amount.

Redemption is only available during a limited period of time. Your right of redemption ends when the car is sold.

Should You Redeem a Repossessed Car?

Most people are not able to redeem their repossessed car. After all, if the car owner could not make the car payments, he or she is not likely to have the finances to pay off the entire balance.

Even if you can redeem the vehicle, however, redemption might not be in your best interest. Often, the vehicle is worth much less than what you'd have to pay to get it back. And sometimes cars are damaged during the repossession, making them worth even less.

The Right to Reinstatement: Getting Caught Up on the Loan

If you don't have the funds to redeem the vehicle by paying off the loan in full, you might be able to get the car back through reinstatement. To reinstate the car loan, you get the loan current by making up all of the past due payments, including applicable fees and late charges, in one lump sum.

When Do You Have the Right to Reinstate Your Car Loan?

There are usually two ways to get this right:

  • The right of reinstatement might be built into your loan agreement.
  • Even if your loan agreement doesn't give you a right of reinstatement, the laws of your state might allow you to reinstate the loan. However, not all states provide for a right of reinstatement. And under federal banking law, some national banks might not be subject to state laws providing for reinstatement.

How to Reinstate Your Car Loan

If your loan agreement or your state's laws give you the option to reinstate, immediately contact your car loan lender and request a reinstatement quote. Your car loan lender is required to send you written notice of your right to reinstate, which will include the amount necessary to bring the loan current. The reinstatement amount is usually only good for a limited period of time, typically 15 days from the date of the notice.

As with redemption, reinstatement is only available during a limited period of time. Your right to reinstate will typically end when the car is sold or if the reinstatement amount is not paid within the deadline specified in the notice.

Getting Information for Your State

To find information about your state or local law, including whether you can redeem or reinstate your car loan, do some research on your own (visit Nolo's Legal Research area), contact your state attorney general office or state consumer protection agency (see State Consumer Protection Offices to find yours), or consult with a local attorney.

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