Factsheet No. 10
Repossession of Motor Vehicles
What is repossession?
When you buy a car on credit (by borrowing some or all of the price of the car), the lender (for example a bank, finance company or car dealer) will usually take a mortgage (also known as a charge) over your car, as security for the loan to you.
A mortgage gives the lender the right to take your car from you without having to go through the court process, if you stop making payments on your loan. Taking your car is called repossession.
The rights of the borrower (you) and the lender (the bank, finance company or car dealer) are set out in the mortgage and the loan contract which you sign when you purchase your car.
There is also law (the Consumer Credit Code) that may protect you, regardless of what your mortgage or loan document says. However, the law does not apply in all circumstances.
If you are borrowing money to buy a car or other goods, do not sign a statement that your loan is for business purposes unless it definitely is. Signing a statement that says your loan is for business purposes will probably stop the Consumer Credit Code from protecting you.
The requirements for a lawful repossession
If the Consumer Credit Code applies to you then there are rules the lender must follow if they want to repossess your car. These requirements are:
- you must have signed a written mortgage ;
- you must have "defaulted" on your loan (for example, failed to make one or more payments on your loan);
- the lender must give you a default notice (which tells you the payments you have failed to make) prior to repossessing your car. The notice must give you at least 30 days to remedy the default. You can use the 30 days to pay the outstanding amounts, or negotiate a reduction in payments (see our Factsheets "negotiating with creditors" and "hardship variation to loan repayments");
- a lender cannot usually repossess your car if the amount currently owing on your loan is less than 25% of the total amount of your original loan or $10,000.00, whichever is the lesser (note, there are some exceptions);
- the lender cannot take your car from your premises or anyone else's unless you or the person living in those premises agree in writing to the lender entering the premises or there is a court order;
- a lender can only repossess your car between 8am and 8pm, Monday to Saturday (and not on public holidays);
- if you do not agree to repossession, the creditor may apply to the court for an order requiring you to hand over your car. You must comply with the Court order or you can be fined.
Your rights after repossession
After your motor vehicle has been repossessed, there are some rules the lender must follow:
- you must be notified in writing that your car has been repossessed, and what its estimated value is. Your car cannot be resold until 21 days after this notice has been issued;
- your car must be sold for the 'best price reasonably obtainable' and 'as soon as reasonably practicable' (You can apply to the Court for compensation if the lender delays unnecessarily in selling your car or resells your car for less than the best reasonable price. The lender must show that they did sell for the best reasonable price and as soon as reasonably practicable.);
- you can object if the lender charges you expenses for repossessing and reselling your car which seem unreasonably high;
- you can find a buyer yourself who you can introduce to the lender at any time during the 21 days after you have been notified of the repossession. Finding a buyer yourself may be the best way to ensure your car is sold for the highest possible price;
- if the lender sells your car for more than the amount outstanding on the loan plus the reasonable costs of repossession and sale, the lender must give you the rest of the money received from the sale of your car;
- if you still owe money on the loan even after your car has been sold, the lender must notify you how much you still owe ("the residual amount"). This residual amount will then be payable by you. Unless you can reach an agreement with the lender for the repayment of the residual, the lender can then start legal action to recover this amount.
What should you do if repossession has started or is threatened?
- Try to negotiate with the lender.
- Check that the lender has followed all the requirements listed above. If you suspect that they have not, ring your State Office of Fair Trading/Consumer Affairs, or your local community legal centre or legal aid office for further assistance