Getting approved for a car loan following a repossession that's less than a year old is usually very difficult

Car loan question

Here at Auto Credit Express, one applicant that had experienced issues with his or her posed this question to us: "I have had a recent repossession, can you help me get back into a car loan?"

The answer to this question is "it usually depends upon how long it's been since the repossession occurred, unless you're open to alternative financing sources."

Here's why:

Bad credit and repossession

auto finance, repossession

Although most of the dealers in our network work with a wide range of lending sources, the vast majority of these subprime lenders, even many willing to work with borrowers with the worst credit, stipulate that any repossession that appears on a credit report must be over a year old before they'll even consider looking at the application.

So if you have a repossession that’s less than a year old, what should you do? Here are some tips:

• You’ll notice we used the term "vast majority" when we noted the one year time frame most subprime lenders adhere to. The fact is a couple of lenders will ignore a vehicle repossession, as long as it wasn’t with them. This means even though it might be a long shot, it wouldn’t hurt to try to get approved with a dealer that works with subprime lenders. The logic behind this is that even if you’re turned down, it won’t hurt your chances with the only other option available.

• That second option is a buy-here-pay-here (BHPH) dealer. These dealers have what is called "in-house" financing. This means you are borrowing money from the same dealer where you purchased the vehicle (not a bank, credit union or finance company) in order to finance it. As a rule, these dealers don’t check your credit and don’t care when or even if you’ve had a repossession. On the other hand, depending on the vehicle you choose, you’ll probably need a larger down payment and you’ll also be paying a higher interest rate than you would to a subprime lender. But if you really need a vehicle and you can’t wait a year from the date your last car was repossessed, this may be your only choice.

The Bottom Line

In most cases, consumers who have had a vehicle repossessed will need to wait at least a year until they can expect to get approved for a car loan with a subprime lender. While there are exceptions to this rule and buyers should still give it a try, the number of lenders willing to do this is so small that most borrowers should be prepared for a high interest rate and with the large down payment BHPH dealers will require, if they need a vehicle right away.