Everyone makes mistakes. And although a previous repossession will indeed have a negative impact in your chances of securing a new car loan, it is not impossible to overcome. The most important thing is how you managed the situation and whether you’ve done efforts to recover from that financial downfall.
As we’ve said, you still have a chance of getting a car loan after a repossession and in the hands of a good lender you can secure that loan. A good lender listens about how you end up getting your car repossessed. Is it because of job layoffs? Expensive medical expenses? Looking for the right lender that will understand your situation is crucial.
A repossession happens in an event that a buyer fails to pay back the loan. An agency reacquires the vehicle (in this case a car) which will then be sold at an auction. Technically, a repossession can happen if the buyer misses even a single payment but more often than not, a grace period is given.
Right after a repossession, a buyer still has a chance of retrieving his or her vehicle by catching up with past due payments. However, if the vehicle expenditures (monthly payments, fuel, insurance and maintenance) still exceed your current financial capacity, it would be wise to let go and start looking for a more affordable vehicle.
Even though your vehicle has already been sold, its current purchase price might not be enough to cover the remaining balance of the loan. Additional costs can also incur such as repossession fees (which the buyer is obligated to pay) that also needs to be settled. Before applying for a new loan, you must make sure that you don’t owe any money on the vehicle. This is the first thing that you should clear up before working towards a new loan..
Creditworthiness is a combination of multiple factors. Even though a repossessed vehicle in your track record is indeed an issue, you can bounce back by improving some components of your credit.
Be patient. A repossessed vehicle can stick to your credit report as long as seven years but the impact won’t be the same as the years go by. A lender’s main concern is the risk of loaning you money in the present – not in the past nor in the future. Waiting it out (for a few more years) until applying for a new loan would be wiser.
Look for a Cosigner. If waiting isn’t your thing, the quickest way in securing a loan is with a cosigner. To a lender, having someone who will willingly take on the loan – if you’re no longer able to do so – is important because it presents lesser risk. An eligible cosigner ideally has a stronger creditworthiness than the primary borrower.
Bigger Down Payment. A bigger down payment decreases the total amount of money that you will borrow from your lender. Therefore this will also reduce the risk that the lender is taking. Subsequently, if a lender is taking lesser risk, it is very likely that you’ll get a better interest rate. That is why bringing a down payment (the bigger the better) will increase your odds of an approval with better interest rate.
Opening a Secured Credit Card Account. If getting a regular credit card is impossible due to your current financial issue, acquiring a secure credit card will help improve your credit. How? In a secure credit card, you are required to place a security deposit that equals the credit limit. This security deposit safeguards the lender from risk at the same time, your monthly payments will help rebuild your credibility.
Being Mindful of Deadlines. Paying on time and being organized with your monthly dues is important if you want an approved loan. Having a repossession on your profile along with late monthly payments will not help your case. Being mindful with the schedule of your financial obligations is vital if you want to get an approved loan.
Honesty about your Past. Deliberately keeping any financial issues from a possible lender is illegal. Being honest about how you end up with your current financial trouble (even providing a written statement about it) is important to a lender. Keeping information from your lender when asked about your credit past will not help secure a loan.