Dave Says: Should I Allow My Car to Be Repossessed?

Dear Dave,

I’m having trouble making my auto payment. I owe $20,000, and the car is worth $17,000. Should I allow the bank to repossess it, and could they take a lien against my house if they do?

Jose

Dear Jose,

You bet they could slap a lien on your home. You never want to go through repossession if there’s any way to avoid that scenario. If they repossess, not only does your credit take a huge hit, you also lose control of the price of the car.

After a repo, the lender will sell the car and sue you for the difference. But if you sell the car, you might be able to work out a higher price, leaving you a lesser amount you’d owe for the difference. Chances are if your loan is with General Motors, they won’t work with you on the $3,000 difference. In that situation, you can either negotiate with the bank or go to another bank or credit union and get a small loan for the difference. Just make sure you pay the loan off as quickly as possible.

Keep in mind, too, that even if the car is worth $17,000, it won’t bring that much on the repo lot. More than likely it would sell for about $11,000, leaving you $9,000 in the hole. By giving up control, you’d create a much bigger financial mess. I wouldn’t do that.

—Dave