Consumer Myth #3 – A financing company or bank must give advance notice of intent to repossess.

Texas law does not require a finance company or bank to notify a consumer that their payment is late, that it is eligible for repossession or scheduled for repossession. Under most motor vehicle installment sales agreements, if your payment is one day late, the secured party may repossess your vehicle. Many people think there is a grace period or it must be 30 days late. Not true. The contract provides for a payment due date so if payment is not made by that date, the customer is in default of the agreement. A default allows the secured party to repossess its collateral, your vehicle. Another common default under car finance agreements is when insurance coverage lapses. An insurance lapse is a default. Without advance notice, the finance company may repossess your vehicle. Since the finance company is a lienholder and an additional insured on the policy, it is notified by the insurance company when the insurance lapses. For a finance company, the car is collateral securing their loan and insurance protects their interest. If either is imperilled or cancelled, a finance company will act to protect their interests.