What Is Auto Repo? Five Frequently Asked Questions

Understanding auto repo laws and how to buy repossessed cars is the first step in getting a great deal on your next used car or making a nice profit by reselling repo autos you have purchased cheaply.
Q.  Why are cars repossessed?
A.  When a person takes out a loan to purchase a car, the car is the collateral for the loan. If they get behind in their payments, the lender (typically a bank or credit union) notifies them that they need to catch-up in their payments or pay at least part of the amount they are behind. The lender takes back the car if the conditions are not met at which time the vehicle is considered repossessed and becomes a bank repo auto.
Q.  What kind of cars are repossessed?
A.  Financial hardships can occur to anyone at anytime, so there are a wide range of cars available. Vehicles can be economy cars, luxury sedans, SUVs, trucks, etc. Some may be pretty old and/or in poor condition, but sometimes a sudden health problem, loss of income or other event, causes a newer car to be foreclosed on. These can be hardly used and still look like new.
Q.  Why buy auto repos?
A.  While the condition and age of the cars vary, the prices tend to be low. A rule of thumb for bidding at auction is to not pay more than the trade-in or wholesale value. You can find prices lower than that, sometimes 50-75% less or more than what you would pay for a similar car at a dealership or through a private-party sale. You may be able to resell it and make a nice profit. Many people make a living buying and selling repo cars or do it part-time for a second income.
Q.  How are repo cars sold?
A.  Since banks make loans not sell cars, they typically give the cars to an auction company that auctions the vehicles off to the highest bidder and returns the money (minus their commission) to the bank. Ideally, a lender wants to recoup the total amount still owing on the car loan but they are rarely interested in more than that. If someone put down a large down payment or paid the loan off quickly due to high monthly payments over a shorter term, the amount owing may be much lower than the value, allowing the bank to set a lower starting bid. Even with vehicles that have a high outstanding loan balance, the lenders accept the highest bid whether or not it is more than what is still owed. The lender will turn around an sue the previous owner (the one that defaulted on the loan) for the difference still owing. That is why auto repo auctions can provide such great values.
Q.  How can I buy a repossessed car at auction?
A.  Once you have located auction times, dates and locations by contacting lenders, looking for ads and checking online auto repo sites, you can get a list of cars available at the auctions. If you find some you are interested in, research the cars’ values to determine a good price. When you attend the preview, inspect the vehicles carefully, choosing those in good condition with only minor issues. Deduct the cost of any needed repairs from your bid price. If the bidding gets too high, don’t bid. Be patient to get what you want at the right price. Once you win an auction with the highest bid, you need to pay for the vehicle with an accepted payment (sometimes only cash) in a specified time (from at the end of the auction to up to 72 hours). Be sure to know if it comes with any warranty and if you have a set time (usually 2-3 days if there is one) to get the vehicle inspected and return it if you discover major problems.

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