How to get an Auto Loan After Repossession

July 1, 2022

Obtaining an auto loan after repossession can sound like an insurmountable task. If you’ve missed your car payment so often that your car has been repossessed, it can be hard to imagine who would want to loan you money for another car. While there’s nothing stopping you from buying a vehicle with cash immediately after a repossession, financing can be another story. It gets easier to get an approval the older the repo is, but it’s still possible relatively soon afterward with the right lender.

Buying a Car After Repossession 

Vehicle repossessions can hurt your credit score and make it hard to qualify for an auto loan. Most traditional and subprime lenders don’t accept borrowers with a repossession that’s less than 12 months old. After 12 months, some lenders may be willing to work with you if you prove your ability to repay a loan and maintain your credit score. Others may provide a loan but may charge a higher rate for the more considerable risk they’re taking. A good way to bounce back after a repo is by paying everything on time, all the time.

Rebuilding After Vehicle Repossession

A repossession stays on your credit history for seven years from the original delinquency date. That’s the date of the first missed payment that led to the repossession status.

A repossession is usually a last-resort option for a lender after a borrower has stopped making payments. It’s considered derogatory on a credit report, meaning it will have a substantial negative impact on credit scores.

It can lead to a borrower paying higher rates to make up for the added risk the lender is taking.

Securing a Loan at a Buy Here Pay Here Dealership

If your credit score is poor now and it’s been less than a year since the repossession, a buy here pay here (BHPH) dealership may give you a higher chance of approval. BHPH dealerships have in-house financing where you apply for financing at the dealership and the dealer is the lender. These are typically independent dealers that are limited to selling used vehicles. While used cars may be your only option, these dealers often skip over the credit check. Without a credit check, your recent repossession doesn’t impact your eligibility. For many of these dealerships, your proof of income, down payment size, and proof of identity are the most important parts of your eligibility.

If you’re able to qualify for a loan from a BHPH dealer, expect a higher than average interest rate. Since many of these dealerships skip pulling your credit, they tend to charge more for borrowing. Think of this as the trade-off for skipping the credit check.

Making a Down Payment

A down payment is a great way to lower car finance costs. It means borrowing less money, which can make monthly payments more affordable. To lessen interest charges putting a large down payment on the vehicle and choosing a short-term loan to pay down the loan quickly is recommended.

A subprime loan after a repossession will likely require a down payment. Even without a repo, subprime lenders typically require at least $1000 or 10% of the vehicle’s selling price.

Taking Back Control of your Finances

A car loan after repossession is often an opportunity for a borrower to take back control of their finances and there are numerous ways to achieve this as you apply for new credit and scout out the best deal.

• Know your credit situation – fully understanding your credit position will give you a better idea of what to expect if approved for a loan
• Build credit before you apply – pay loans on time, stay within credit limit, only apply for credit you need,
• Use a cosigner – apply with a creditworthy cosigner for a possible better deal
• Provide down payment – put as much down as your budget allows
• Know what you can afford – look at your budget to determine how much car you can afford
• Choose an appropriate lender – find a lender that will accept applications from consumers with bad credit

Repossession might feel like an overwhelming strike against you and your finances. It’s important to realize that you can repair bad credit. Working to reach a healthy financial situation after a repossession will mean that this experience will be in the rearview mirror.