Missed your car loan EMIs? Can the bank take your vehicle away?

Reports coming in for today mention that Missing a car loan EMI does not mean someone will turn up the next morning and drive your car away.

But if the payments stay overdue, repossession is a real possibility. A vehicle loan is generally a secured loan, which means the car itself acts as security for the money you borrowed.

So if you stop repaying the loan, the lender can eventually take steps to recover the vehicle. What it cannot do is ignore the rules and simply use force to get it back.

If you miss an EMI, the first thing you are likely to receive is a reminder from the lender. There may additionally be late payment charges depending on the terms of your loan. If you clear the overdue amount quickly, the matter may end there.

The situation becomes more serious when several payments stay unpaid.

Before repossessing a vehicle, the lender has to follow the terms of the loan agreement and the applicable recovery process. RBI guidelines require repossession clauses to spell out important details such as the notice period before possession, how possession will take place and the opportunity given to the borrower to repay before the vehicle is sold.

This is where your loan contract becomes important. Instead of just ignoring notices from the lender, you should read them and see what the contract tells you around defaults and repossession.

The recovery agents may be involved, but this doesn’t mean that they can intimidate or use violence against you.

RBI rules prohibit lenders and their agents from using intimidation or harassment during debt recovery. The Supreme Court has additionally criticised the use of musclemen and firm-arm tactics for taking possession of financed vehicles.

If someone stops you on the road, threatens you or tries to forcibly take your vehicle, don't assume that this is acceptable simply because you have missed EMIs.

If you know that you cannot make the next few payments, contact the lender before the situation reaches that stage.

Maybe you have lost your job, your income has fallen or you have had a large unexpected expense. Tell the lender what has happened and ask what options are available. Depending on the lender and your circumstances, you may be able to clear the overdue amount or discuss another repayment arrangement.

Don't assume, that stated, that simply handing back the car will automatically wipe out the loan.

In case the bank seizes the car and then sells it off, the sale amount is utilized to pay the dues. In case the sale amount is not sufficient to settle your dues, there could be some outstanding amount for payment. In case there is any surplus amount after settling all the dues and charges, it needs to be settled as per the agreement and rules.

There could be a chance of taking back the car before it is auctioned. The RBI guidelines on repossession require that the loan agreement needs to provide a process for handing back the possession to the borrower and a final chance for repayment. The exact amount and time available will depend on your lender and agreement.

If your car has been repossessed, ask the lender in writing how much you need to pay, what charges have been further noted and how much time you have before the vehicle is sold. Keep copies of all communication.

And if you believe the lender or its recovery agent has acted improperly, complain to the lender first. If the complaint is not resolved satisfactorily, eligible complaints involving RBI-regulated entities can be taken to the RBI Ombudsman.

The most important thing is not to ignore the problem once you start missing car loan payments.

A lender does have the right to recover a vehicle that secures an unpaid loan, provided the proper process is followed. But defaulting on your EMIs does not give anyone the right to threaten you or forcibly take your car without following that process.