A repossession can be tough on your finances, but it's still possible to get another vehicle. You typically have two options for your next car loan after a repossession, and you can start repairing your credit with the right lender at the same time.
Car Loan Options After a Repossession
With a repossession on your credit reports, it can be nearly impossible to get approved by a traditional lender (think your financial institution or an automotive captive lender). Not only is your credit score damaged, your credit reports likely show late payments, a default, and a repossession.
This doesn’t mean you’re doomed to never qualify for a car loan again. Repossessions stick around on your credit reports for up to seven years, but with each passing year, the negative impact on your credit score lessens.
Additionally, there are used car lots that typically don’t check your credit score during the loan process. These are commonly referred to as buy here pay here (BHPH) dealerships, or in-house financing or tote the note dealers. Many BHPH dealerships don’t check your credit because they’re more concerned about your income, down payment, and ability to make the vehicle payments.
There are also bad credit lenders that work with unique credit situations, who take your credit score in to account. They're called subprime lenders, and an auto loan with one can help you improve your credit score. These lenders work through dealers that have special finance departments.
Buy Here Pay Here Dealerships
BHPH dealerships are rather common, and they only sell used cars. The biggest plus is that most aren’t likely to review your credit score or credit reports, and are often a go-to place for bad credit borrowers.
These dealers have what’s called in-house financing, meaning the dealer is also your lender. This also means that BHPH lots don’t rely on third-party lenders. Here, you apply for credit, pick out your vehicle, and take delivery at one place. While this can be convenient for some borrowers, there are some downsides to these dealerships.
Some BHPH dealers may not report your auto loan to the credit reporting agencies. This means even if you make all your payments on time, your credit score won’t improve. If you want your credit score to improve after a repossession, and you decide to go with a BHPH dealership, make sure they report their loans to at least one credit bureau before you sign the contract.
Another thing to keep in mind is that BHPH dealers typically charge higher interest rates than third-party lenders at regular used car lots. Think of this as the trade-off for the lack of a credit check.
Subprime Lenders and Special Financing
After a repossession, you may also qualify for a subprime auto loan. Subprime lenders, or bad credit lenders, are known for working with borrowers in many types of credit situations.
As we mentioned, these lenders work through a dealership’s special finance department. They typically require similar items in order to consider you for financing. These items include proof of income, residency, a working phone, and identity. Additionally, you’ll probably need a down payment of at least $1,000 or 10% of the vehicle’s selling price, and a list of personal references if you’re approved.
Subprime lenders review credit reports during the loan process, but using all the items listed above, they evaluate more than just your credit score for car loan approval. However, if your repossession is less than a year old, many subprime lenders won’t approve you for financing. As we mentioned, a repossession’s negative impact on your credit report lessens over time, but you may have trouble getting approved with one that’s less than a year old.
However, if you qualify for a subprime auto loan, it’s reported to the credit reporting agencies. If you keep up with the payments, you can improve your credit score for future lending opportunities and better loan terms.
Looking for Your Next Auto Loan?
Finding a lender to work with when you have a repossession on your credit reports can be challenging – but it doesn’t have to be.
At Auto Credit Express, we have a network of special finance dealers that work with subprime lenders. A bad credit car loan has the potential to improve your credit score and get you the financing you need.
To get connected to a dealership in your area, simply complete our free auto loan request form.