The time it can take to qualify for a car loan after repossession varies depending on the lender, but you typically have to wait at least a year before you can apply for financing.
Getting your car repossessed is no picnic. Vehicle repossession can be a big setback in life, but you may be able to recover from it over a period of time. Once enough time has passed, it's possible to get an auto loan after repossession, as long as you're working with the right type of lender. Many lenders are willing to approve individuals with damaged credit.
When your car is repossessed, it's taken back by the lender, typically because you failed to make your payments or broke some other agreement in the contract. When this happens, it's recorded on your credit report, where the negative mark remains for seven years. Other lenders see that you had a repossession and may be hesitant to work with you since you failed to keep up your end of the bargain with your last lender.
Fortunately, with time and credit repair, you can typically take out another loan in around one to two years. It's important to understand this timeline and what you can do within that time to help your chances of taking on another auto loan.
Timeline for Buying a Car After Repossession
Being approved for a car loan after a repossession is often only possible if you wait until at least one year has passed. This is because lenders are worried that you're going to default on a loan again, and repossession is just as expensive for a lender as it is for you.
In addition, the longer you wait, the less impact a repossession will have on your credit score. The time between the repossession and when you apply for a loan will also gives you an opportunity to save for a down payment and improve your credit.
Remember, credit improvement is the biggest factor in cutting down the timeline and getting back on the road in a financed vehicle. This means starting with your deficiency balance.
Even though your car may have been repossessed, you are still liable for any outstanding balance on your former vehicle, called a deficiency balance. Once a lender repossesses a vehicle, they typically sell it at auction to recover as much value as they can.
If they're unable to sell the car for the amount you owe them, you're required by law to pay off the difference. The sooner you pay off the deficiency, the better. Paying off this balance can raise your credit score, and it's the first step to getting a car after repossession.
Financing Options Post-Repossession
Besides being costly and hard on your credit score, repossession can reduce the pool of lenders willing to work with your situation. For this reason, your best chance at getting an auto loan after a repo is going to come from a subprime lender.
Subprime lenders look beyond your credit score to get you financed based on your income, employment, and residence stability. These lenders specialize in working with people in unique credit situations, including repossession, bankruptcy, and bad credit.
If you desperately need a vehicle after your car was repossessed, consider in-house financing. These Buy Here Pay Here or Tote the Note dealers typically do not check your credit, and they may allow you to finance an automobile if you meet their qualifications. However, you will probably have to pay higher interest rates at these types of dealerships.
Even though these lenders are more willing and able to work with someone in your position, there are a few things you can do to help make the process easier on yourself:
Review Your Credit Report
Since you probably have to wait a year after repossession to apply for a loan again, you can use this time to improve your credit. To do this, get your credit score and reports and check them for accuracy. Removing any inaccurate entries can raise your score. You can also see where you need to improve, and work on those areas: pay off any past due accounts, begin making all payments on time, and reduce your credit card balances.
Receive copies of your credit report from Experian, Equifax, and TransUnion to see an overview of your credit, and you may even want to get your credit score. Having your credit reports in hand will allow you to check them for potential inaccuracies. It will also give you information that you can use to better understand your credit situation and help you improve it in the future.
Save for a Down Payment
A good way to increase your approval odds is to finance as little as possible for the shortest term you can. One way to accomplish this is with a large down payment. A large down payment could improve your chances of being approved for a loan, as it lessens the risk that lenders have to take on.
Lenders may also view you as a committed buyer if you already have a sizeable down payment in hand. Furthermore, this payment will lower the amount of interest charges you pay over the course of the loan.
The bigger your down payment, the less you have to borrow. Lower loan amounts can lead to reduced interest charges, shorter loan terms, lower monthly payments, and less time with negative equity.
Stay Within Your Means
After a repo, it's not the time to finance your dream car. Making a reasonably priced vehicle choice that has a monthly payment you can afford is a great start for buying a car after repossession.
Work With The Right Lender
Not every lender can work with repossession, and the lenders that can only work through special finance dealerships. These dealers don't always shout about their special financing departments from the rooftops, so you must know where to look ahead of time.
Tips for negotiating with lenders.
Checklist for Buying a Car After Repossession
If you plan to buy a car after repossession, you need to take a few steps to be approved. The first step is paying off any deficiency balance and fees from the repossession to help clean up your credit report.
Next, begin paying all your bills on time and in full to ensure your credit score begins to improve. To monitor your credit, you can use the government-sponsored website www.annualcreditreport.com to get a free weekly credit report and stay on top of your credit health. Once your credit begins to go up, you should also monitor your credit score. There are several ways you can do this for free, including through your bank or credit cards.
As your credit begins to build over a year, you can prepare your documents for getting a bad credit car loan. Lenders like to see a little more proof of your ability, stability, and willingness to repay a loan when you're a bad credit borrower.
This means gathering proof of income, employment, and residency, along with a valid driver's license, and a utility bill in your name. You will need to prove you have a working phone and provide a list of personal references. Check out more details on lender requirements for bad credit car loans here.
Finally, when you are ready to buy a car after repossession, apply online with us. Auto Credit Express will match you with a dealership that will give you the best shot at being approved for an auto loan. We have assisted many individuals who have had their vehicles repossessed, and we may be able to do the same for you.
We work with a nationwide network of special finance dealers that have subprime lenders available. Rather than driving from one end of the city to the other looking for the right dealership, just fill out our auto loan request form. Once you do, we get to work matching you to a dealer in your area that has lenders available to help people in unique credit situations. What are you waiting for?
FAQs
How long should I wait after a repossession to buy a car?
You should wait at least one year after a repo to try and purchase a vehicle. The longer you wait and the more you work to improve your credit after a repossession, the more likely you are to qualify with the right lender.
What financing options are available after a repossession?
After a repossession, you will typically see a drop in your credit score, and it could be as much as 200 points. The number of points that will be removed from your credit score can vary, depending on many factors, including your credit score itself. The higher your score is when you have a repo, the more points you are likely to lose. Because of this, you're likely to need financing through a subprime lender at a special financing dealership, or you can go through a BHPH dealer who doesn't focus on credit as much as other lenders.
How can I improve my credit score after a repossession?
There are many ways to improve your credit score after a repo, but the best way is to pay all your bills on time and in full. Since credit history is the biggest factor in your credit report, keeping up with your current bills will really help. You can also focus on keeping long-standing credit cards and lines of credit open and in good standing, and try not to apply for too much credit.
Will a repossession affect my ability to get a loan?
Yes, a repo will impact your ability to get a loan in the future. Since a repossession means you didn't hold up your end of the contract with your last lender, the next lender may be even more hesitant to work with you than if you had bad credit, but no repo. A repo is a big red flag for an auto lender, and it will take time and effort to repair your credit enough for a lender to take you on as a risk.
What should I look for in a lender after a repossession?
When searching for a lender after repossession, it's important to visit a lender that can work with bad credit situations. Many lenders and captive financiers only work with borrowers who have good credit, which makes it difficult to gain approval for a loan.
To combat this, you should seek a special finance dealership that works with subprime lenders. Subprime lenders work with borrowers who have credit issues and unique situations, such as a repo on their credit reports.
Even though these lenders are more likely to work with you after a repo, it's still going to take at least a year of credit building to be approved for a car loan after repossession.
