When a lender charges off a car loan, it doesn’t mean you’re off the hook or that you’ll never be able to get another auto loan. Here’s what to expect if you’ve had a car loan charged off.

A Car Loan Charge-Off

Once you stop making payments on a car loan, your lender can charge it off. This means they make the loan “bad debt” and consider any balance a loss.

Your lender also has the right to repossess the vehicle and sell it, typically at auction. They use what the car sold for at auction, minus the auction fees, to cover the remaining balance of your loan. If the loan balance isn’t paid in full, you’re left to pay the difference.

This amount is called a deficiency balance, and accounts like this are often sent to collection agencies. This can mean calls from debt collectors until you pay it off.

Although the name of this process is a charge-off, it doesn’t mean you no longer have to pay it, or it longer exists. You’re still responsible for the loan – even if you no longer have the vehicle.

Charge-Offs Impact on Credit

What Is a Charge-Off on a Car Loan?A charge-off can remain on your credit reports for up to seven years, starting from the date of the first reported missed payment. This harms your credit score and puts a damper on your ability to get new credit.

Even if you’ve paid the charge-off amount, it remains on your credit reports. However, the effect is less if your other bills are being paid off on time, or you’re actively making payments on the charge-off balance to pay it off.

It can be difficult to get another car loan with a charge-off. Lenders may view this as a red flag, since your last vehicle was likely repossessed even if just the charge-off shows up on your credit reports. However, the impacts of bad marks on your credit reports lessen with each passing year, and there are still options if you need an auto loan.

Where Can I Get an Auto Loan With a Charge-Off?

If you’ve recently had a vehicle charge-off, say within the last year or two, traditional lenders typically will turn you down for a car loan. Credit unions probably won’t approve you either. If you can’t get a loan from one of these lenders, you have two other options to look into.

First, there are buy here pay here (BHPH) lots – dealerships with in-house financing. This means the dealer is also the lender, and typically, these lots don’t check your credit reports during the approval process. What they want to know is whether or not you can afford the monthly payment, and they require a hefty down payment. The biggest downside to these dealerships is that they may not report your timely auto loan payments to the credit bureaus, meaning your credit score wouldn’t improve from the loan. However, they usually do report missed/late payments and repossessions.

Secondly, there are subprime lenders. These lenders are also known as bad credit lenders, and they use more than your credit score for approval. They check your credit reports, but they also look at your overall ability to repay the car loan, and your job and residence stability. This means they look at your work history, pay stubs, and residence history. They also require a down payment, but a trade-in with equity could help with that. Subprime lenders also report auto loans and monthly payments to the credit bureaus.

If you want to improve your credit score and you keep up on a loan, subprime lending could be an option for you. At the same time, since they check your credit reports, some of these lenders won’t consider you if you have a charge-off showing up that’s less than a year old.

Where Do I Find Bad Credit Car Dealerships?

No credit check dealerships are located in most cities. If you hear/see an advertisement saying, “No credit, no problem”, that’s likely a BHPH dealer. For more info on these dealerships, click here.

Dealerships that have special finance departments are the ones that work with subprime lenders. These can be a little trickier to locate, but they’re all over the country. Subprime lending is mainstream now, whereas it used to be harder for buyers with less than perfect credit to get approved for auto loans.

If you want to find a dealer that works with bad credit lenders, we want to help with that. At Auto Credit Express, we’ve gathered a network of dealerships that work with bad credit lenders. To get started, simply fill out our auto loan request form. It’s free, secure, and, best of all, you can do it from the comfort of your home. After you fill it out, we’ll get to work finding a dealer in your local area.