There are situations where consumer goods are the preferred choice of collateral for lenders. This usually happens when a borrower is taking out a car loan; the car itself will be used as the collateral for the loan. In case the borrower defaults on the loan, the lender usually has the option to repossess the car and dispose it of commercially. The disposal process occurs in an auction where the car will be sold to the highest bidder (Stӑnescu, 2015). The borrower is also usually allowed to take part in this auction. If they can bid for the car and make the purchase, the car will be sold to them.
In some instances, lenders are disinterested on repossession because of the time and money factors involved. They opt to go for alternative ways of securing the loan. One such alternative is referred to as the right to cure the default. In this case, the lender allows the borrower to reinstate the loan by making all the late payments together with all the late charges and applicable fees in a single lump sum. For this option to materialize, the initial loan agreement signed should have the provision for this (Stӑnescu, 2015). Reinstatement is allowed only once. The borrower cannot be allowed to reinstate the loan again if they default the second time.
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The lender can also allow the borrowers to surrender the cars. In this situation, the borrower willingly gives back the car to the lender so that they can have the deficiency either reduced or waived. This is used as a viable alternative as it helps the lender save time and money that they would have spent repossessing the car themselves (Stӑnescu, 2015). However, as a borrower, you should only agree to surrender the car once a written agreement has been signed stipulating the settlement of the deficiency.
References
Stӑnescu, C. G. (2015). Self-help, private debt collection and the concomitant risks: a comparative law analysis . New York, NY: Springer
