Consumers who had a car repossessed may have to wait a year in order to get another car loan, even if they apply with a subprime lender.
The One Year after Repossession Rule
Repossessions are a double whammy. Not only will a driver lose their vehicle, but a repossession seriously damages credit and stays on credit reports for up to seven years. Considering a car loan has to be in default before a lender can repossess it in most states, consumers with a recent repossession usually find their credit falls in the subprime range (a credit score of around 620 and below).
While subprime lenders offer financing to consumers with poor credit, even their rules usually state that any repo must be a year old unless it's included in a bankruptcy. Also, these lenders typically won't finance borrowers with more than one repossession on their credit report.
Even though consumers need to wait a year in order to get financed again in most cases, this may not be such a bad thing.
A Plan for While You Wait
Consumers that have had their car repossessed may face a lower credit score along with a bill for any balance owed and fees related to the repo. These two outcomes should give borrowers extra incentive to wait before trying to get financed.
To start, it’s a good idea to pay any outstanding balance and the repossession fees before applying for another car loan. Additionally, consumers can benefit from taking steps to rebuild their credit during the waiting period.
Borrowers can improve their credit score to help qualify for better rates and terms when it comes time to apply. Paying bills on time to establish a strong payment history, getting current on any past-due accounts, reducing credit card balances, and checking credit reports for errors to dispute are all sound strategies that can raise credit scores.
Saving for a down payment will also help when it’s time to apply for an auto loan. Subprime lenders almost always require a down payment of at least $1,000 or 10 percent of the vehicle's price, but borrowers can boost their chances of getting approved with a larger down payment.
Reestablishing credit after a repossession takes time and commitment, but it'll help financing prospects for borrowers with credit trouble. If waiting a year is out of the question, a borrower's only hope for a car loan may be with a buy here pay here dealership.
Ready to Get Financed?
If a year has passed and you're ready for your next auto loan, CarsDirect wants to help you find financing. We work with a network of dealerships that are experts in special finance, so they know how to help consumers dealing with credit problems like a past repossession. We'll start the process of matching you with a local dealership after you fill out our free car loan request form online.