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How to Avoid Repossession on Your Car Loan in Kenya
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How to Avoid Repossession on Your Car Loan in Kenya

Faith is a 33-year-old community manager at a start-up in Nairobi, where she’s been working for the last three years. However, her employer has been struggling for a while now. And amidst the storm, the company was forced to take drastic measures. 

The struggles of her employer forced painful pay cuts and layoffs. Faith, who had been earning Ksh90,000, found herself among the affected. Her salary was slashed by Ksh15,000. To compound her worries, Faith had recently purchased a car with an auto loan back in January. 

With her income reduced, Faith foresaw the impending struggle to meet her monthly payments. She played around with her budget to reduce expenses, but this wasn’t enough. She had to do something to avoid repossession of her car.

She contacted her lender, who provided various options, including downgrading or selling the car. However, Faith chose to modify her loan as she still needed the vehicle.

She convinced the lender of her job security and income stability, leading them to agree to modify her loan terms. The lender reduced her car repayments from Ksh40,000 to Ksh30,000 per month and extended the repayment period. Although her loan cost would increase in the long run, Faith successfully avoided car repossession.

Do you have an auto loan and, like Faith, facing a looming specter of repossession? 

A lot of scenarios can prevent you from meeting your debt obligations, from reduced or lost income to unexpected expenses caused by significant life events or a rise in interest rates. When you fail to service your auto loan, you will damage your credit ratings, incur penalties, and worse, get your car repossessed. 

So, how can you prevent this before it happens? Read on.

Read Also: FULL GUIDE: The Process of Car Financing in Kenya

What is Car Repossession?

Repossession happens when your lender takes your car away in the unfortunate event that you are unable to continue paying your monthly auto loan installments.

When you take on an auto loan, the lender provides the cash to buy a car. You promise to repay the amount plus interest through installments, typically monthly payments. You will co-own the vehicle with the lender through NTSA in-charge process that establishes the lender as the lien holder. Because the lienholder is financing the loan, they have a legal stake in the vehicle until the debt is fully paid off. 

If you fail to service the loan, the lender (lien holder) has the right to repossess the car, compel you to meet your obligation, and if you fail, they can sell the vehicle through public auction to recover the money they loaned you. Typically, they won’t need a court order for this, as it is specified in the loan agreement. However, you can move to court to stop the auction if they can prove that an offence was committed. 

When you take an auto loan, you must make monthly repayments on or before a specific date of each month. If you fail to make a payment, your lender will reach out to you and give you advance notice of impending repossession if you don’t meet your obligation within a number of days.   

So, how can you prevent repossession before or after receiving this advance warning from your lender?

6 Ways to Avoid Repossession of Your Car Loan

1. Make Up For Missed Payments

Your lender will only repossess your car if you miss your payment. As established above, they will send you a notification warning you of an impending repossession. Once you receive it, the easiest way to avoid repossession is to immediately make up for the missed payment before the window your lender has offered you lapses. 

Making up for the missed payment allows you to avoid any conflict with the lender. Ask yourself whether this is one tight month or your car payment will be an ongoing problem. If it is the former, you can start taking measures to prevent it from reoccurring. If it is the latter, you will need to make up for the one missed payment and immediately begin exploring lasting solutions. Since you might need to involve your lender, making up for the missed payments ensures you are in their graces when you start negotiating.

If you are facing repossession and need to raise money to make up for missed payments, consider borrowing from your savings, selling valuable items you own but no longer need or use, getting a temporary loan from friends or family, or cutting a considerable expense from your budget to prioritise car repayment. 

Read Also: How to Live Through Financial Instability Without Losing your Mind 

2. Communicate with Your Lender

When you find yourself in a situation where your budget is stretched thin, and you cannot raise funds to make your car payments, you should immediately contact your lender. The sooner you contact the lender, the more choices the lender can offer you. It also shows that you value your financial obligations and actively seeking a resolution. Ideally, you should contact them well before you receive a repossession notice.

Reaching out to your lender offers two primary benefits. First, it shows your willingness to address the issue, which can help you avoid penalties and accumulating debt. Second, the lender can create a hardship agreement tailored to your needs. Through this agreement, your lender may offer a simplified repayment plan or propose a path that helps you avoid repossession, including asking you to surrender the car. 

When explaining your situation, you will need to prove your story to the lender. Additionally, if they restructure your repayment or ask you to refinance, you will need to show how you will avoid a similar situation in the future.

Read Also: How to Spot and Avoid Predatory Lenders in Kenya

3. Refinance Your Auto Loan

Refinancing your car entails replacing your current auto loan with a new one. The new loan will pay off your original loan, and you will start making monthly payments on the new loan. The biggest reason to refinance your loan when facing repossession is the opportunity to lower your monthly repayments and make it more manageable.  

However, low repayment means a longer loan term, and you’ll probably pay more interest in the long run. Additionally, refinancing your auto loan involves taking a new loan and paying off your existing one. Therefore, before doing it, ask your lender if there will be fees such as a prepayment penalty. Second, before going ahead, compare your total in fees with the amount you will save from refinancing. 

You can refinance your car loan with your current lender or use a different one if your lender allows it. Consider shopping around for auto loan refinance lenders and compare their rates and terms.

4. Surrender The Vehicle 

Surrendering the vehicle involves voluntarily returning your car to the lender because you cannot meet the terms of your loan agreement. To do this, you will first need to contact the lender and inform them of your plan to surrender the car. Then you can set up a meeting to return the vehicle and hand over the keys.

Surrendering your car doesn’t necessarily relieve you of the debt. You will still be obligated to repay the loan. However, it can spare you from the stress of forceful repossession and save you money. When the lender sends auctioneers to repossess the vehicle, you will be charged a  repossession and towing fee which you must pay when you go to collect your vehicle or after your car has been auctioned.

When you surrender your vehicle, you will have two options. Let the lender keep the car as you get your finances in order, or ask them to sell it. If it is the former, you will need to pay all missed and accumulated payments and some other fees, including storage. For the latter, you’ll be responsible for paying any balance after the sale, along with any fees, like storage, auction, late payment, or prepayment fees.

5. Sell The Car Yourself

Typically, when you default on your auto loan and your car is repossessed, the lender will sell it at a public auction to recover their money. However, this has a drawback: the vehicle may not always fetch its highest possible value.

When your car is repossessed and sold at an auction, it’ll be sold at its forced sale value instead of its market value. Forced sale value (FSV) is the price a car would sell for at auction under distressed conditions, and it is typically lower than the market value.

If you are facing repossession, you can talk to your lender and ask for a green light to sell your car independently. This has two benefits; first, you will likely sell it for its market value and two, you will avoid repossession and auctioneering fees that you’d pay if the car were repossessed and sold by the lender. 

Remember, you will need the lender's cooperation and a buyer with ready cash or financing for this to work. If you don’t, you must ensure you never miss any installments while searching for a buyer. 

Read Also: Is Resale Value Really That Important When Buying a Car?

6. Trade it for a cheaper vehicle.

If your financial situation has changed and your auto loan car is no longer affordable, consider trading it in for a more affordable one. This strategy will work best for you if you need a car but can’t afford your current one. It will prevent you from stretching your finances, defaulting, and avoiding repossession. 

To trade in your car, you will need to involve your lender. If they have another vehicle, you can downgrade it, making the process easier for both of you. When you trade in a financed car, the dealer takes over the loan and pays it off on your behalf, meaning your loan will be cleared. 

If there’s any money remaining after your car loan has been paid off, it will typically go towards your next car. The lender will then process a new car loan for you, and you will receive different term loans. The new car will likely come with lower payments as you will be downgrading.

While this process will help you reduce your current car loan and get a new car, it might cost you depending on your lender. First, you might be charged prepayment fees and other charges associated with selling your current vehicle. Second, getting a new car will involve taking a new loan which means you will pay the processing fee, valuation fees, and all other costs associated with car financing. 

Read Also: 10 Questions to Ask Before Getting a Car Loan in Kenya


Repossession can have significant effects on both your credit ratings and your finances. Firstly, it can severely damage your credit scores, making securing future loans harder. A repossession remains on your credit report for several years, signalling that you could not fulfill your financial obligations to potential lenders. This negative mark can lower your credit scores and limit your borrowing options.

Secondly, repossession can also cost you money. When the lender repossesses your vehicle, they will typically sell it at an auction to recover the outstanding debt. However, the amount obtained from the sale may not cover the full loan balance, resulting in a deficiency. You are then responsible for paying this deficiency amount, which can include the remaining loan balance, auction fees, and other related expenses. Failing to pay the deficiency may lead to legal action and additional costs.

If you are facing repossession and are not sure what path you should take to avoid it, consider seeking advice from a financial expert or debt counselor. These professionals can assess your situation and offer personalised guidance on the option you should take depending on your financial situation. 

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Farah Nurow is an experienced Content Writer who enjoys writing creative and educative articles meant to provoke readers' thoughts. He loves sunny weather and thick books. You can connect with him on LinkedIn.

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