Getting a car loan after repossession isn't easy. Most major lenders won't give you a loan of any kind after car repossession, but there are always options out there for even the worst credit situations. You should consider the benefits of waiting for some time to pass before you try to finance another car unless you must have the car for transportation and don't have any other options.
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Pay the Balance
If you owe a balance on the repossessed car, like the difference between what you owed and what the car resold for as well as repossession fees like storage and prepping for auction, pay it as soon as possible. Avoiding this debt only further damages your credit because you'll have the car repossession as well as the delinquent balance on your report. Get your debts paid down as quickly as you can and this will help improve your credit.
Wait as Long as You Can
While you can go to a subprime lender and get a loan after car repossession, you're going to pay a much higher cost in interest rates than you would have before. There may be extra fees associated with being granted the loan, too. You can improve your credit even after car repossession if you can open another line of credit and make the payments on time for several months. Pay all your current debts on time, as well. After six months, your credit rating should improve, but the longer you can wait, the better off you'll be. After one to two years, your score will be higher and you can get a car loan at a much more reasonable interest rate.
Get Your Credit Reports
Contact the credit reporting agencies (Innovis, 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
Look for a loan at a small car dealership. These dealerships are more likely to offer lower rate loans to people with bad credit, repossessions and even bankruptcies. Try a clearinghouse online where they shop your loan to several lenders.
And probably the easiest solution for getting a loan after a car repossession, especially if you can't wait a year or two for another vehicle, is to find a same-day car loan establishment. Few run credit checks, but instead look at your income before granting a loan. If you have proof of your income and proof that you have a bank account, and your income is deemed enough to cover the loan, then you can have a car loan by the next day. The interest rate on these guaranteed car loans, because of the risk to the lender, is extremely high. Make the payments on time and restore your credit, then refinance later with another lender at a lower rate. Just be sure you really can manage the payments before you get another loan to avoid a second car repossession.
Understanding Car Repossession Laws
Although car repossession laws vary somewhat from state to state, there are some things that are true everywhere. Under all car repossession laws, if you miss payments on your vehicle, the company that holds the title has the right to repossess it. There are qualifications to these factors and those can be the important parts. It's important you know exactly what's in the contract you've signed.
In a number of states, your car can be seized as soon as you miss a car payment. At that point, under many contracts, you're in default on the loan. At that point, your creditor (the company to which you owe the money) can take your car at any time, even if it's on your property. However, to do so they can't commit what's termed a "breach of the peace". Depending on the state, that can include breaking into your garage to remove the car.
If the creditor doesn't follow that part of the law, you can sue for compensation of property damage or the creditor might be forced to pay some kind of penalty. If you're in a situation where you're being sued by the creditor for what you owe on the vehicle after they sold it, known as a deficiency judgment, then that breach could give you a good legal defense.
If your car is repossessed, the creditor has to look after and return whatever property of yours is in the vehicle. It can't be sold. You have to be given a list and told how you can reclaim it.
Selling Your Car
After repossession, the creditor can either keep your vehicle or resell it. Depending on the state, the creditor might have to tell you what is happening to the vehicle. You might be able to buy the vehicle back for the amount you owe in default plus the rest of the loan and sales expenses. If it's at auction, you could bid for it.
It's possible that the car repossession laws in your state allow the loan to be reinstated. Under this you can get your car back by paying what you owe on the loan to date, plus the expenses from the repossession. You'll need to agree to make all your future payments when they're due, or your vehicle will be repossessed again.
If your car is sold by the creditor, you should be aware of the price. The sale has to be done properly. If it's not, and the creditor takes out a deficiency judgment against you, then you have a good defense against it. Under car repossession laws, if the creditor sells the car for more than you owe plus the expenses, it has to give you the extra money.
Preventing Vehicle Seizure
The simplest way to avoid repossession is to contact the creditor if you know you're going to be late with or miss a payment. Most will be willing to work with you on the loan, especially if you have a good payment record. If you agree to change payment dates, get the change in writing.
Negotiating through Car Repossession
Negotiating in the face of possible car repossession is better than hiding in a far off city while behind a car payment or two. This is only a temporary stalling move that will ultimately backfire in your face and affect both your wallet and credit standing. The first piece of advice if facing this situation is to not avoid your creditor or the problem. You'll never be able to run and hide forever, but through a little bit of know-how, you might be able to avoid repossession if you follow these steps.
Face the fact that you need to talk to your finance company about discovering a solution to getting you back on track. Your creditor is in the money-lending business and not the car selling industry so they will most likely listen to your plan. Determine a monthly payment amount that you can afford and can stick to paying. If the finance company agrees to the figure and you fail to make a payment, rest assured, a repo man will be on the way hunting you down at work, home, and play while contacting and annoying every relative and friend you have.
Depending upon how many payments you are behind, corporate lending policies and the possibility that your suggested new payment plan is unacceptable, you may have to sell the car to recoup at least some of the loan amount. Let your lender know that you have the car on the market. Send your lender any "ad" copies or Internet addresses where you've posted the vehicle for sale. Sometimes the lender will work out a payment program to cover any balances due after the car is sold.
If you are in the position to obtain a home equity loan, this may be one solution to consider. Additionally, home equity loans generally carry better interest rates than a car loan will, but, defaulting on this loan will leave you homeless.
Consider Life Changes
If you are in over your head, you might possibly be living a lifestyle where you spend more than you take in each month. Although you might fit the profile of a credit-worthy candidate when your on-paper debt to income ratio appears satisfactory, other lifestyle costs may be putting you in jeopardy. You might want to consider downsizing costs like dining out, entertainment and other lifestyle enhancements to afford necessities like an automobile.
Seek Legal Help
If all else fails, you might want to seek legal advice about bankruptcy alternatives that could help save your automobile and home while allowing the courts to negotiate payment to your creditors. Although you will more than likely retain your auto through personal bankruptcy procedures, this drastic measure will have a long-lasting affect on your ability to get future car loans.
Some states call for automobiles sold at special auction for repossession to repay lenders the actual principle costs plus a fee for their trouble, so to speak, allowing any money beyond the required lender repayment to come to the original owner.
Auto Loan Charge Offs and Car Repossession
When a car customer with a lot of financing can't pay on time, an auto loan charge off might happen. However, most agree that it is in the best interest of the customer to see that it doesn't. Auto loan senders have the system on their side when a buyer puts themselves in a "default" situation by not making the payments that they agreed to. Often, when a default occurs, the lender ends up with the car and whatever cash has been paid, while the customer just ends up with bad credit.
Many times, an auto loan charge off will go hand in hand with a car repossession, and both of these events can happen quickly; when the driver least expects them. Car financing companies and other lenders can legally pick up a vehicle from the street or even a property owner's driveway. In fact, many times, the auto loan lender has the title to the vehicle, or a lien on the title until the last payment has been made.
As an alternative to repossession, a car loan company can freeze the vehicle, but usually, it's more in their interest to do an actual repossession to get the vehicle back into inventory.
The Charge Off
Some car buyers mistakenly think that because the vehicle has been repossessed, the debt is canceled, but this is not the case. A charge off does not let someone loose from the responsibility of paying the money. However, it does put them in what most people would agree is a decidedly detrimental position. The driver no longer has the vehicle they paid money on, sometimes for many months. They also still owe an amount of money that is due in-full immediately. The charge-off balance will generally be the difference between what the buyer promised to pay and the amount that the lender can re-sell the car for. Many times, this will be a significant amount of money.
With that in mind, experts counsel those involved in auto loans to do anything and everything they can to protect their investment. Some say drivers who are late making their payments, and without accessible cash, should raid savings and investments, sell assets or somehow raise the cash in the short term to avoid losing out in a charge off situation.
A Possible Solution
When a charge off has been done, it may look like the damage is done, and the situation may seem to be completely in deadlock. But, some auto loan companies may be willing to make a trade: in exchange for payments up front, the lender can make an attempt to take the bad mark off of the customer's credit report. Otherwise, it would seem that the debt-ridden car buyer would have little reason to pay up for the charge off amount. Generally, after the charge off, the negotiations begin about how to address the situation. Alternately, the lender walks away with everything and the debtor does their own "charge off" by starting over again from square one, using public transit or walking.