Can I Get a Car Loan After a Repossession?

Can You Buy a Car After a Repossession?

It's possible to secure financing for a vehicle after a repossession, but it can be challenging. When you apply for any type of loan, the lender's top priority is to ensure full repayment. That's why your payment history is the most important factor of your credit score.

A repossession on your credit report indicates that you failed to repay a past auto loan as originally agreed. Some lenders may be unwilling to work with you if you've had a vehicle repossessed in the past—especially if the repo happened recently. If you do get approved for a loan, either through a bank, credit union or an online lender, you can expect it to have unfavorable terms, including a high interest rate.

Some car dealerships aggressively target buyers with enticing offers to secure financing even for buyers with bad credit or past repossessions. Be aware, however, that these so-called "buy here, pay here" dealerships tend to charge high fees and interest rates on their loans that can end up adding a lot to the overall cost of the vehicle.

As such, the simplest route is often to buy an inexpensive used car with cash. If that's not an option, however, there are steps you can take to improve your approval odds.

How to Improve Your Chances of Getting an Auto Loan After Repossession

Qualifying for an auto loan after a repossession can be an uphill battle. However, there are some things you can do to put lenders' minds at ease. Here are some tips to help you get started:

• Get a cosigner. When you apply for an auto loan with a creditworthy cosigner, the lender will consider both credit histories and financial profiles to make a decision. In addition to improving your approval chances, a cosigner may help you secure more favorable terms.
• Improve your credit. Your payment history is just one of many factors that influence your credit score, so taking steps to improve your credit can help make up for negative items from the past.
• Pay bills on time. While you may have missed some payments in the past, a more recent history of on-time payments can show lenders that you're working hard to change your financial habits.
• Pay down debt. Your debt-to-income ratio (DTI) is another factor that lenders consider when you apply for a loan. By paying off smaller debts, you'll remove those payments from your DTI calculation, showing that you have room in your budget to take on a loan.
• Save for a larger down payment. The more money you put down, the less you'll have to borrow. What's more, larger down payments indicate that you're serious about keeping the car. Both of these things can help reduce the potential risk to the lender, giving you a better chance of approval.
• Shop around. Not all lenders look at repossessions the same, so it's important to shop around and compare eligibility requirements and loan terms from multiple lenders to find the right fit.

Learn more: How to Get a Car Loan With Bad Credit

How Repossession Affects Your Credit Score

A repossession stays on your credit report for up to seven years from the original delinquency date. Since your payment history is the most influential factor in your FICO^® Score^☉, the whole process can cause your score to drop by 100 points or more.

Here are the different ways it can hurt you:

• Late payments: Before the lender seizes your vehicle, it'll report your initial late payments leading up to default and repossession.
• Default: Once the lender reports that you defaulted on your debt, it can hurt your score even more than the late payments.
• Collections: In many cases, auto lenders don't send an auto loan to collections because they can seize the vehicle and sell it to collect the debt. However, if there's a deficiency balance on your loan after the sale has been completed, and you can't pay it, the lender may send that portion of the debt to a collection agency. The resulting collection account can further damage your credit score.

How to Improve Your Credit

Although a repossession is a serious credit misstep, it is possible to rebuild your credit and get back in the good graces of future lenders.

The process for improving credit will depend on your unique credit profile. Start by registering with Experian to get free access to your Experian credit report and FICO^® Score, both of which can help you pinpoint areas you can address.

Other general guidelines for increasing your credit score include the following:

• Make it a priority to pay all your bills on time.
• Get caught up on past-due payments, including collection accounts.
• Keep your credit utilization low on your credit cards.
• Minimize unnecessary applications for credit.
• Consider asking a loved one with great credit to add you as an authorized user on their credit card.
• Sign up for Experian Boost^®ø, which adds monthly payments such as eligible rent, utility, streaming service and cellphone bills to your Experian credit report and could instantly improve your FICO^® Score.

Ways to Avoid Repossession

Because a repossession can have such a big impact on your credit history and score, it's important to take steps early to avoid missing payments on another auto loan and risking default. Here are some things you can do:

• Communicate with your lender. Avoiding repossession is in both your and your lender's best interests. Depending on the lender and your situation, you may be able to request a deferment or a modified payment plan that allows you to get back on solid financial footing.
• Refinance your loan. If possible, you may be able to refinance your loan through another lender and ask for a longer repayment term. While this means you'll end up paying more in interest over the life of your loan, it could help you reduce your monthly payment to a more affordable level.
• Ask for help. Loved ones may be willing to help you financially, which could provide the short-term relief you need to keep up with your payments and avoid default. You may also be able to request financial assistance from the government or community assistance programs to cover other aspects of your budget, such as groceries and utilities, allowing you to use that cash flow to make your debt payments.
• Surrender the vehicle voluntarily. If you're getting close to defaulting on your loan and can't find a way to avoid doing so, you may choose to voluntarily surrender the vehicle to your lender. This process could save you some money on repossession-related expenses, and it may also be better for your credit.

If you're worried about missing a payment on your auto loan, take steps immediately to try to avoid going down the path toward default and repossession.

Monitor Your Credit After a Repossession

While a repossession will remain on your credit report for several years, its impact on your credit can diminish over time, especially if you develop and maintain good credit habits going forward.

As part of your efforts, make it a priority to monitor your credit regularly to keep track of your score and how different actions affect it. Experian's free credit monitoring service provides access to your Experian credit report and FICO^® Score, along with real-time alerts when changes are made to your report.