One of the worst financial things that can happen to an individual is having a car repossessed, which can make getting a car loan nearly impossible. There are ways to get back into a position where a major financial institution will consider giving you another loan, but they do require time and lots of dedication on your end.
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Pay the Balance
If there's a balance your repossessed car's loan—the difference between what you owed and what the car resold for—pay it as soon as possible. Remember that on top of what you owed for the car, the bank will look for you to pay off the repo fees and any other fees associated with reselling the car.
Avoiding this debt only further damages your credit because you'll have the car repossession as well as the delinquent balance on your report. Getting this debt paid down will make the best out of a bad situation as quickly as possible.
Play the Waiting Game
While you can go to a subprime lender and possibly get a loan after a repossession, you're going to pay a much higher interest rate than you would have before. There may also be extra fees associated with being granted the loan. You can help improve your credit even after car repossession if you can open another line of credit and make the payments on time for several months.
With steady payments for six months to a year, you should start seeing your credit score tick up. Also, keep in mind that the longer the repossession stays on your credit, the less of an impact it has. What’s more, this repo will eventually fall off your credit report altogether in 7 to 10 years, though you are still financially responsible for the debt.
Get Your Credit Reports
Contact the credit reporting agencies (TransUnion, Equifax and Experian) and add a note to your report with each of them, explaining the circumstances of the repossession. You can only add a very short note, but at least your side of the story will be on the report when people check your credit. Some lenders might take that into consideration.
Where to Look for a Loan
There are some places that cater to buyers with damaged credit and even repos. Typically, these are smaller dealerships that do in-house financing (AKA buy-her-pay-here). The downside to these avenues is that they typically come with hefty down payments and high interest rates. If you choose to take this route, make sure to check that the dealership reports all payments to the three major credit bureaus—not just negative items—as this can help improve your score and devalue that earlier repossession.
Whichever option you choose, it is always best to make certain you are in the financial position to make car payments before diving into another loan. One repossession is rough on your credit, but two will essentially disqualify you from getting a car loan for 7 to 10 years.