When a creditor decides to stop coming after you for missed payments, they may list the debt as “charged off” and deem it a loss. A charge-off stays on your credit reports for up to seven years from the date of the first missed payment, and lowers your credit score. If you have a charge-off listed on your reports, you aren’t automatically disqualified from getting a car loan, you just need to find the right dealership.

Where to Get a Car Loan after a Charge-Off

If you have a charge-off listed on your credit reports, a traditional lender is more than likely not going to approve you for financing. Although you should still try for pre-approval with your bank or credit union, be aware that you may need to look elsewhere.

When your credit is bad due to one or more charge-offs and you have been turned down by your bank or credit union, you have two types of dealers you can check out:

Special finance dealerships – These dealers are signed up with subprime lenders, and specialize in offering auto financing to credit-challenged consumers. Subprime lenders look at your credit score and reports, but consider outside factors such as income, employment, and residency, to name a few. Each subprime lender has different requirements, so make sure you know what they’re looking for. What makes bad credit car loans great is that you can improve your credit score by making all of the payments on time.

Buy here pay here dealershipsBuy here pay here (BHPH) dealers also offer auto loans to those with credit issues. What makes them different is that the dealership is also the lender, and that most don’t run credit checks. As long as you have the income to qualify and the necessary down payment, it doesn’t matter what’s on your credit reports. However, BHPH dealers may not report to the credit bureaus, so you might not be able to improve your credit score with one of these loans.

How to Improve a Charge-Off on Your Credit Reports

Just because your debt is charged off doesn’t mean you’re off the hook. You’re still responsible for the debt you owe, and you have three ways you can handle a charged-off account:

  1. Pay back the lender – If your debt hasn’t been sold to a collection agency, you can simply work on repaying the original lender. Once you pay them back, make sure the lender changes the account’s status to “paid charged-off” and updates the balance to zero.
  2. Pay the collection agency – If your account has been sold to a collection agency, you can pay them. Make sure you ask the collection agency for proof that they own the account, and that they list the collection as a "paid collection" after you pay them back.
  3. Settle the debt – You can negotiate on a settlement where the lender or collection agency accepts a lower amount than the originally agreed upon amount. Make sure the charge-off is listed as “settled charge-off.”

One last tip once the debt has been paid off: ask for a final payment letter to keep for your records in case you need to dispute a wrongfully listed charge-off or collection.

Need Help Finding a Dealership to Work With?

Having a charge-off on your credit reports does lower your credit score, but you can still get the vehicle you need even if your credit is struggling. At Auto Credit Express, we’ve been helping car buyers dealing with bad credit for over 20 years get the financing they need.

We’re not lenders, but our job is to get you connected to a local dealership that has the lending resources available to help people in unique credit situations. To get connected to a dealer, fill out our free and easy auto loan request form. Don’t stress looking for a dealership, get started right now!