A repossession can impact your ability to get another car loan, but it isn’t impossible – if you know which lenders to talk to and give yourself, and your credit, some time to heal.
After a Vehicle Repossession
Once your car is repossessed, it's typically sold at auction to cover the remaining balance on your auto loan. You’re responsible for any remaining balance plus any fees that your lender incurred during the repo process – recovery, towing, storage, etc.
But what if you’ve taken care of all that, and you need another vehicle right away? The good news is that you still have some options, but your credit score now reflects a repossession. Here’s what to do next.
Prepare for a Car Loan After Repossession
If your vehicle was recently repossessed, or it was less than a year ago, most traditional lenders are likely to turn you down for another car loan. Traditional lenders usually include credit unions, banks, and the captive lenders of automakers. Subprime lenders may also be hesitant to approve a borrower with a recent repossession.
However, if your repo is over a year old, your chances of approval increase. Over time, the negative effect on your credit score lessens – but it still may not be the best.
To help prepare for your next car loan, focus on repairing your credit. This means:
- Paying off any outstanding collections that are harming your credit.
- Keeping up on other debts and bills by making timely payments.
- Removing incorrect information from your credit reports.
- Reducing your credit card debt.
- Keeping unused or old credit accounts open (closing them can lower your credit score).
Payment history is the largest factor in determining your credit score. If you don’t have the funds to lower any other debts currently, focus on making on-time payments on all your accounts at the very least. Just like a repossession, missed or late payments can remain on your credit reports for up to seven years.
Make a point to review your credit reports from the three major credit reporting bureaus: TransUnion, Experian, and Equifax. You’re allowed to request a report from each of them for free once every 12 months at www.annualcreditreport.com. Take a look at your reports and see what lenders see when you apply for your next auto loan. This way, you can be an informed car buyer and know where you need to improve and what you’re likely to qualify for. And, reviewing your own credit reports won’t harm your score!
Additionally, take the opportunity to correct any misinformation that may be listed including old or inaccurate information, duplicate accounts, or paid negative accounts. This is called credit repair, and there are credit repair companies that can help with disputing this incorrect information, which can help improve your credit score.
After all of this hard work, if you’re still getting turned down by auto lenders, there are a few options left to explore.
Buy Here Pay Here Dealerships
There are dealers that don’t usually pull your credit reports during the car loan approval process, called buy here pay here dealerships (BHPH). These dealers have in-house financing, simply meaning that the dealership you work with is also your lender.
The biggest plus with these dealers, especially after a repo, is that your low credit score typically doesn't matter. Even if your repossession is less than a year old, the dealership usually won’t review your credit reports. This could mean getting approved for an auto loan rather quickly, even after a recent repossession, when most traditional lenders may turn you down.
BHPH dealers are more concerned about your ability to make loan payments than your credit score. They do require a down payment, which could be 20% or more of a vehicle’s selling price. If you end up at a BHPH lot, be prepared to bring a down payment to get a car.
However, while BHPH dealerships don’t typically use your credit score in the approval process, they do report missed and late payments and repossessions. They also don’t typically report good paying behavior. What this means for you is that even with timely payments on an auto loan, your credit score won’t improve – but any missed or late payments lower your credit score. Be sure to ask the dealer if they report car loans to the credit bureaus if you want your credit score to recover from a recent repossession.
Another route to investigate is subprime lending. While some subprime lenders may not approve you for an auto loan with a recent repossession on your credit reports, it’s still worth looking into.
Subprime lenders work through a dealership’s special finance department to help borrowers with less than perfect credit scores get approved for auto loans. They review your credit reports, but they also take into account your income, job and residence stability, and bill and loan payment history.
These bad credit lenders report car loans to the credit bureaus, and if you keep up on the monthly payments, this can help rebuild your credit score after a repossession.
We want to help with that.
At Auto Credit Express, we match borrowers with unique credit situations to dealers that work with subprime lenders. Once you complete our free auto loan request form, we get to work finding a dealership that can work within your situation. There’s never an obligation to buy, so let us help you take the hassle out of finding a dealer that can work with you.