Auto repos rising and how to avoid it

In 2006, there were about 1,368,000 vehicle repossesions. For 2007, that number jumped by 10% to 1,505,000. Experts are estimating a similar jump for 2008, if not slightly higher. Thats quite a few people that are unable to make their monthly car payment, be it leased or financed. That auto repos are rising is yet another consequence of the lax credit market of the last few years. You know.. the one that created the current home mortgage mess.

You can blame it on the banks for extending so much easy credit.  You could also blame the consumer for agreeing to take on an obligation that they knew was more than they could handle.  Regardless of who you blame though, the effects are taking a real toll on everyone involved.  And everything involved too. 

When a vehicle gets repossesed, it usually ends up at auction, where used car dealers pick them up to put back on the consumer market and make a quick buck.  A perfectly fine cycle as long as everything is in balance.  Except now, inventories are jumping up and bringing the market down with it.  Used car sales are down 7% for the year, and resale prices are also being pushed down.  Thats great if you’re a buyer.  But not so great for auto owners, businesses, the economy, etc.. 

This glut of cars is also the reason that every automaker is rethinking their leasing business.  Leasing is all about estimating what a car will be worth in a few years time.  This residual value is, in the current enviroment, a lot lower than what many banks and automakers estimated when they wrote the lease.  Regardless, they have to take back that car at the end of the lease.

So how can you stay out of this mess?  There are basically two options for you.  Renegotiate the loan somehow or sell the car and get something cheaper.  With either method, time is the only real factor that you can control.  Act as soon as you see trouble down the road, start too late and there may not be enough time to do either.

To get better loan terms, you can try communicating directly with the bank and see if they can either lower your rate or extend the term.  If they’re not willing to accomodate your situation then you’re left with seeking out another bank to refinance with.  Assuming you’ve acted before any late payments become inevitable and start to take a toll on your credit, this should be no problem. Refinance with another bank to get a lower rate and/or to extend the loan term.

To get out of your vehicle altogether, sell it yourself starting as soon as possible.  Avoid any type of dealer trade-in, you’ll squander what ever equity you may have or end up in a situation little better than when you started.  Even if your vehicle is leased you can still get out of it by doing a lease transfer to someone willing to take the vehicle.  The only issue here is time, the more you have the better.

[Source:  BankRate]