Yes, it is possible to finance a car if you have a repo. Even though it is possible to get another car loan, it is not going to be easy and may cost you quite a bit of money over the life of loan. Here are a few things you should keep in mind when applying for a car loan post repossession.
Age of Repossession
The first thing to consider is the age of the repossession. Actually, there are two aspects within this thought pattern. First, is the repossession less than two years old? If so, no traditional lender will offer you a loan. Banks and credit unions are going to politely tell you to look elsewhere. The second aspect under this heading is: have you fixed the financial circumstances that led to the repossession? If not, do you really need to be thinking about a loan?
Credit Score Consideration
Another consideration is your credit score. A repossession initially lowers your credit score. If it was the only item you defaulted on, the your score will rebound after one year, getting a bit higher every few months after the first year. It will rebound more quickly if you were able to pay any balance leftover after the repossessed vehicle was auctioned off. If not, your score will struggle for years after that balance was posted to the credit reporting agencies.
When a repossession becomes necessary, most people are in a situation where they have to default on multiple debts, causing many collection accounts to appear on their credit report. Open collection accounts may make it impossible to get a new car loan unless you file for bankruptcy. A discharged bankruptcy will help you rebuild your credit, improve your score, and qualify for the car loan that you need.
Post-Repo Auto Finance Rates: Ouch!
The last thing to consider is the loan terms themselves. If you have had a repossession, you are going to be forced to pay a higher interest rate and the loan will have shorter terms than you may be used to. Why? Lenders are risk adverse and a person with a repo on their credit profile is a risk. Lenders negate their risk by bumping interest rates and getting their money back faster. It is notoriously difficult to predict interest rates, as they vary based on so many factors. However, suffice to say you will likely be facing a rate north of 12% APR, perhaps even in the neighborhood of 20% APR.
With an active repo on your credit profile or within a few years of having a bankruptcy discharged, you can forget about traditional banks and most credit unions. That does not mean you will be forced to deal with a buy-here-pay-here dealership. There are several reliable specialty services that are willing to work with people who have lower credit scores, a repo, or non-traditional income. You can find the majority of them online. Keystone Auto Loans [website] is one of the major players.
What To Expect
While these subprime lenders are willing to be forgiving of your past credit indiscretions, they are not blind to the risk that you pose. You can expect an interest rate between 15 and 20 percent as well as an loan term as short as 30 months. While those terms may sound steep, this is a give and take situation. The lender is taking money from you, but is giving you a monthly positive account on your credit report. This will allow you to rebuild your credit and eventually move back to getting your loans from more traditional lenders.
Vehicle Not Yet Repossessed?
If your vehicle has not yet been repossessed, but you are worried what will happen afterwards, there are steps you can take to avoid repossession. We’ve linked to an article by the Washington State Attorney General on the subject, but his information is relevant nationwide. The first and most important is to contact and open communication with your lender on the subject, as many will allow you to defer a payment.
Recent posts in Buying