It is undeniably true that car repossession has dire consequences on your credit score and affects your future chances of credit ability. Using a car loan may seem like the best way to own your dream car, but the risk of getting your car repossessed looms in the background like a black cloud.
Note that when you have a car loan, the lender owns the car until your car loan gets fully paid off. You can use it while taking care of monthly installments, but if you fail to do it on time, the lender may repossess the car.
A car repossession is when a lender that holds ownership of your vehicle takes back that vehicle if you’ve fallen behind on your car loan repayments. In many states, your lender can repossess your vehicle if you miss a payment without warning.
But some state laws require that the lender sends a notice before repossessing your car. This notice should include missed payment details and provide a deadline for catching up on your loan payments before the lender finally takes your vehicle.
If your car gets repossessed, your credit score will be severely affected, and getting another loan will prove challenging. This is because repossession means that you technically defaulted on your car loan and triggered several financial red flags that would harm your creditability.
There are two types of vehicle repossession which are voluntary and involuntary.
Involuntary repossession means the lender seizes your vehicle because you are behind on your car payments. You won’t know when this will happen, and actual repossession takes place sporadically. However, expect to pay hefty fees if this happens.
Voluntary repossession means that you rightly informed your lender you can no longer afford to pay your car loan and reached an agreement to give the vehicle back to them. This repossession is advantageous, as you are in control and can resolve the issue however you see fit. What’s also good is that you won’t have to pay as hefty fees as with involuntary repossession.
A car usually gets repossessed once you’re 90 days behind on payments. Lenders do not need a court order to start the repossession process. They can shift into gear once you miss a single payment. The lender will inform you that they consider you as having defaulted on the loan but won’t state when and how the repossession happens.
Lenders typically contract with a third-party company, usually an agency, that specializes in repossessing vehicles. These companies are good at what they do, and your car may disappear from the street in front of your house, the parking lot at work, or any other number of places.
How Long Does A Car Repo Stay On Your Credit Score?
Repossession stays on your credit report for seven years, but you can still strengthen your credit even with the repossession on your credit score. You can achieve this by paying off outstanding debts on your car loan, paying off credit card bills, and avoiding adding credit card debt.
If you default on your car loan payment and are in danger of car repossession, immediately contact a non-profit credit counselor if you’re concerned that repossession may happen or is already in process.
If your car gets repossessed, some states allow you to “reinstate” your loan, which means that you pay the past due amount and whatever your lender’s repossession expenses were.
Those payments pay off the loan, and you get the car back. It does not remove the repossession from your credit report, but it does get your car back and bring your loan payments up to date.
Some states also allow you to buy back the vehicle by paying the whole amount you owe. You have to pay the remainder of the loan in addition. But if that’s not an option, wait for the lender to start an auction for your vehicle and buy it then.
Repossession stays on your credit report for seven years. You still have the power to strengthen your credit even with the repossession still there. If your car gets repossessed, some states allow you to “reinstate” your loan, which means that you pay the past due amount and whatever your lender’s repossession expenses were. It doesn’t remove the repo but does help strengthen your score and possibly have your car back.
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