Car Repossession: What Is the Difference Between Reinstatement and Redemption?

If your car is repossessed, you might be able to get it back by redeeming the car from the lender (paying the full amount you owe) or reinstating the car loan (getting current on payments). Below you can learn about redemption and reinstatement after vehicle repossession, the difference between the two, and whether those options will be available to you.

What Is Car Repossession?

If you get behind on your car loan, it is likely that your lender will cut its losses by repossessing the vehicle under the terms of its contract with you, selling it, and applying the sales proceeds to the outstanding balance on your loan. (To learn more about how repossession works, see Car Repossessions and Auto Loan Charge Offs.) If the proceeds from the sale are not enough to cover the balance on your loan plus the lender's costs of the repossession and sale, you'll owe the car lender the remaining amount, called a deficiency. (Learn about deficiency after car repossession.)

Once the car is repossessed, however, you may be able to get the vehicle back from the lender through reinstatement of the loan or by redeeming the car from the lender.

When Redemption or Reinstatement Make Sense

There may be a number of reasons why you want to get your car, truck, van, or other motor vehicle back after the repossession, including:

• You have equity in the car that you do not want to lose.
• The loan is nearly paid off.
• Having a repossession on your credit report will make it difficult for you to obtain another car loan for some time.
• You want to avoid being held responsible for any deficiency balance remaining after the car is sold by the lender.
• Your financial circumstances have changed so that you can afford the payments.

Time Is of the Essence

Regardless of your motive for getting your car back, there are two methods you may be able to use to make that happen: redemption or reinstatement. Whether you can redeem the vehicle or reinstate the loan will depend on:

• the terms of the loan contract between you and the lender, and
• whether your state requires the lender to provide you with redemption or reinstatement rights.

Keep in mind, however, that the time period for redeeming and reinstating is short. Under the laws of most states, after the vehicle is repossessed, the lender is only required to keep it for 10 to 15 days before the car is sold. Therefore, it is vital that you act quickly. Consider talking to an attorney or doing some research if you want to be sure of your rights, but contact the lender as soon as possible after repossession to preserve your right to redeem the car or reinstate the loan.

Redeeming Your Car After Repossession

When you redeem your vehicle from the lender, you essentially buy back the car for what you owed on it. Generally, you can exercise your right to redeem the car until the lender sells or otherwise disposes of it.

Do You Have the Right to Redeem?

Every state grants a borrower some form of redemption right, however, those laws may differ as to:

• how long the lender must keep the car before it is sold (usually 10 to 15 days after the lender notifies you of the repossession)
• what kind of sale the lender must use (mass vehicle auctions are common)
• how the lender must notify you of your right to redeem, how and when it plans to sell the car, and how much it will cost you to redeem it.

How Much Does it Cost to Redeem?

Exercising your right to redeem the vehicle may be expensive. In addition to the outstanding balance, the cost to redeem will include the lender's reasonable repossession expenses, towing charges, storage fees, cleaning and repair expenses, attorney's fees, and other costs like late fees that accumulated during the loan but remain unpaid. These fees alone could amount to hundreds of dollars.

The terms of the redemption may be negotiable, though. The lender may be willing to take less than the full amount owed or discount the repossession fees in order to reduce losses it might incur if it sells the car for less than its value.

Reinstating the Loan After Repossession

Instead of redeeming the car for the outstanding balance plus the lender's reasonable expenses, you might be able to regain possession of the car by reinstating the loan. To reinstate, the lender will typically require that you bring all the payments current, pay any outstanding fees under the contract, like late payment fees, and reimburse the lender for the costs of repossession.

Once you have reinstated the loan, you will still be required to make the remaining payments on time and keep adequate insurance coverage.

Do You Have the Right to Reinstate?

In some states, the law requires that a lender allow you to reinstate the loan. Even if reinstatement is not provided for by law, however, your lender may have included reinstatement in the terms of its financing agreement with you or may have a policy that allows a borrower to reinstate.

How Much Does it Cost to Reinstate?

Like redemption, lenders may be willing to negotiate the terms of reinstatement, including how much of the outstanding balance or repossession costs you will have to pay to get your car back, or the lender may be willing to change the terms of the remaining payment schedule.

What If You Can't Afford to Redeem or Reinstate?

If you do not have the resources to redeem the vehicle or reinstate the loan, bankruptcy may be another option. With Chapter 13 bankruptcy, you could propose a plan to repay the car lender over time or to redeem the car for less than what you owe on it. (Learn more in Will Filing For Bankruptcy Get Back a Repossessed Vehicle?)