You may have purchased a car that you can no longer afford due to financial hardships from lost wages, unemployment or medical emergencies that are higher priority. When you stop making payments to your auto loan, your car may be repossessed by the financing company that issued the car note.
A repossession is reported in your credit report and can follow you for up to 7 years negatively impacting your credit score and preventing you from qualifying for a future auto loan. In some circumstances, you may still be able to get a car loan after a car repossession but you'll end up paying much more. Dealerships or financing companies that approve loans with borrowers with less than perfect credit often charge higher interest rates and fees. A car that may be priced at $10,000 can cost triple the amount after financing for high risk borrowers.
- If you've faced a car repossession in the past, you can begin to rebuild your credit by repaying any outstanding debt as soon as possible. Speak with the lender or financing company about debt settlement or repayment options. Negotiate with the lender to have the debt reported as “Paid in Full” on your credit report once you've settled and paid the debt which can lessen the impact of the repossession on your credit report.
- After a car repossession, time is your best resource in rebuilding credit. As the months and years pass, the impact of the repossession on your credit score will lessen. The repossession will fall off your credit report seven years after the original delinquency.
- Additionally, make sure that you're making on-time payments with your existing creditors each and every month. On time payments with existing creditors will strengthen your credit score.
- You may also open a new secured credit card or loan with a bank or credit union that reports payments to the credit bureaus. A secured credit card or loan will help strengthen your credit score by increasing the types of credit reported, adding additional on-time payments in your payment history and possibly increase your available credit that all factor into calculation used to determine your credit score.