The scenario often plays out like this. You purchase your dream car and the monthly payment seems feasible. Life happens and unforeseen events occur. The car payment becomes a burden. After crunching the numbers and unsuccessfully trying to make it work, the vehicle is repossessed. This scenario is all too familiar for families and individuals that experience financial hardship. Although it may seem like a daunting task, you can recover from car repossession.
But what do you do when your finances improve and you’re ready to address the financial implications of a car repossession? Many people have experienced a car repossession yet most are unaware of how to recover from the experience. With patience and due diligence, you can follow a few steps and recover from a car repossession!
Here are four tips to help you recover from a car repossession:
1. Understand how repossessions affect your credit.
In order to bounce back from a repossession, you must understand the impact that repossessions have on your credit rating and how lenders view consumers with past repossessions. Once a vehicle is repossessed, the lender auctions the vehicle and the consumer is responsible for paying the balance plus additional processing and delinquency fees.
If those fees are not satisfied, the account is then charged off and assigned to a collection agency.If your vehicle is repossessed, it can negatively affect your credit for up to seven years. Click To Tweet
You can expect a reduction in your FICO score of up to 100 points or more. The higher your score, the greater the impact. A repossession will also impact your ability to purchase vehicles at competitive financing in the future.
2. Consider Repossession Friendly Lenders
There are several lenders that offer financing to consumers with previous repossessions. Keep in mind, however, the majority of car dealerships do not have access to or utilize these lenders. To find a dealer in your area that partners with repossession friendly lenders, click here. Be mindful of the following as you consider these lenders:
- You may be assessed an 18% or higher interest rate – assuming you do not have a co-signing party.
- Newer vehicles with low mileage may require a larger down payment.
- Older vehicles with high mileage may offer a lower down payment.
- Like all major lenders, you must provide proof of income and residency.
- A minimum gross income of $800 – $1,500 monthly may be required.
3. Take additional steps to rebuild your credit
4. Don’t Make The Same Mistake Again
Paying an auto loan with a high interest rate may create a money management issue and it may make you feel as though you are in a never ending cycle of car payments. If you do not follow the above tips, you will experience continued reductions in your FICO credit rating and cash flow issues.
However if you do follow these steps, you will be on your way to credit recovery.
What can you do if you are behind on payments, but your vehicle hasn’t been repossessed yet?
If you determine that you are unable to comfortably maintain your current car payment, consider refinancing your vehicle or trading for a lower priced option before the vehicle gets repossessed. After six to twelve months of timely payments, your account is viewed as “in good standing” and you may be able to shop around for lower interest financing options. This process is called refinancing. While refinancing is very common with home purchases, it is not often discussed as a viable option with auto loans.
Calvin Russell Jr is a Certified FICO Professional, Approved Partner With Bankrate, and the CEO & Founder of GoSimplyPro Credit Consultation. GoSimplyPro Credit Consultation is a Chicago based Credit Repair Company. GoSimplyPro Credit Consultation has helped hundreds of people increase their credit scores, qualify for homes, cars, and lower interest rates with their personal, Step-By- Step Game Plans. To learn more email him at email@example.com.