Dear Driving for Dollars, My husband and I lent money to a friend to buy a car. We have a signed contract with him that states we have a lien on the car until he pays the car loan back, but never registered the lien on the title. Now he has stopped making payments. Our first choice is to repossess the car, and our second choice is to sue him to repay the portion of the auto loan that is not paid. Can we do either? -- Amy
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Dear Amy, Car repossession is a legal action with specific requirements that are set by the state to ensure it is done legally. It's unlikely you will be able to legally repossess the car because neither you nor your husband are listed on the title as co-owners or lien holders. To be sure, visit your state's website to see how car repossession is handled there and consult an attorney who specializes in this area if necessary.
That said, you do have a contract with this person that states he will be repaying the car loan. Hopefully it states a specific payment schedule and you've kept track of how much he has paid and on what dates. If this is the case, you may be able to turn the auto loan over to a collection agency, which will work with him to set up a payment plan and follow up on your behalf. While there will be fees involved, this might be a better option financially than suing him.
Filing a lawsuit for the remaining payments is another way of recovering your money, and the strength of your case will depend on how your contract is written and how good the records are that you've kept.
Depending on the amount he owes, you may be able to file in small claims court, which would be the least costly option. Be sure to research the fees involved in any legal action, and factor those into your decision to help ensure you get the most return on your investment.