Our recent economy has been a lesson in malaise and debt corrections, and Americans have shown a decided switch in their payment priorities. Twenty years ago it was just plain embarrassing to be late on a mortgage payment. Today that is no longer the case. In fact, strategic defaults are happening everyday. Believe it or not, some people will keep their cellphone bill current before making a mortgage payment.
Fortunately, the same choices do not seem to be affecting auto loan payments. Auto loan delinquencies have been steadily, if gradually, decreasing since the beginning of 2012. There are a number of theories as to the cause of this trend. Perhaps the most popular is that, these days, having a car is absolutely crucial to the financial well-being of most American consumers. “No car, no job” is a common catchphrase.
Even so, there are those facing repossession. Most consumers don’t realize that a vehicle repossession is just as damaging for the lender as it is for the borrower. Here are a few things that lenders should consider before repossessing a car.
- Some borrowers are simply facing repossession because of a temporary shift in income. The lender should look at the immediate situation. If the borrower now has the ability to make on time payments, make a payment adjustment and stop demanding the back payments.
- Trying to strong arm a consumer is a worthless tactic. Some lenders think that the consumer has no alternative and must have the car in question. Push too hard and refuse to refinance and the consumer will probably have another car on tap before you repossess the one in dispute.
- Some lenders are afraid that giving one payment adjustment will open the floodgates. Repossession is humiliating for most people. The payment adjustment will most likely never be discussed.
- Most lenders operate on the assumption that repossessing and auctioning a car is the best chance they have to recover a portion of the loan. Often the person who is driving the car will offer more money than the lender can get at auction and there are no fees to a repo agency or the auction house.
The need for repossession will never disappear. There will always be a borrower who just can not afford the car anymore or just doesn’t care if the payments are made or not. The point is that repossession should be the last option exercised, not the first.