Repossession

When a loan is secured against an asset, the lender has the right to take that asset if the borrower defaults. The lender can then sell it to recover some or all of the money owed.

Repossession is common with car loans, other vehicle finance and mortgages. In the United Kingdom and several other countries, home repossession is the term used for what is called foreclosure in the United States.

For example, if someone stops making payments on their car loan, the lender may repossess the car and sell it at auction. If the sale raises less than the outstanding loan and costs, the borrower may still owe the difference, sometimes called a shortfall or deficiency.

The rules vary widely between countries and types of loan. Many places require lenders to give warnings and try to agree a repayment plan before repossessing, and some require court orders, especially for homes. In the United Kingdom, for example, a lender cannot repossess a home without a court order, and if a borrower has repaid at least a third of a hire purchase agreement, the lender usually needs a court order to take back the goods. Borrowers facing difficulties should contact their lender early and seek free debt advice.