If your car is repossessed, you might be able to get it back through redemption or reinstatement. Most states allow you to redeem your vehicle (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 works.
Typically, when you take out a loan to purchase a vehicle, the papers you sign give the car loan lender a "security interest" in the car. So, 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.
However, even if a secured creditor repossesses your vehicle, you still might be able to get the car back. The two possible ways to do this are redemption or reinstatement.
Most states give you a right of redemption in the car. That means that if you pay the entire outstanding balance due on the car loan, you can get the car back. The balance you need to pay to redeem the vehicle may include extra fees and charges, like repossession, storage, 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. If you don't receive this notice within five days of the repossession, contact the lender to get the payoff amount.
Redemption is only available for a limited time. Your right of redemption ends when the car is sold.
Most people aren't able to redeem their repossessed car. After all, if the car owner couldn't make the car payments, they're not likely to have the finances to pay off the entire balance.
Even if you can redeem the vehicle, redemption might not be in your best interest. Often, the car 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.
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 bring the loan current by making up all of the past-due payments, including applicable fees and late charges, in one lump sum.
Usually, the two ways to get this right are:
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 specified amount of time, typically 15 days from the notice date.
As with redemption, reinstatement is available only for a limited time. Your right to reinstate will typically end when the car is sold or if the reinstatement amount isn't paid within the deadline specified in the notice.
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 after visiting Nolo's Legal Research area, contact your state attorney general office or state consumer protection agency (see State Consumer Protection Offices), or consult with a local attorney.