Can you refinance your auto loan after repossession?


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It’s rare, but it can happen that you’re unable to pay your monthly loan payment on your car and the bank repossesses it. Now you’re without a vehicle to get to work, and you’re likely at a loss about what to do next and may be asking yourself questions like, Can I get my car back? Can I refinance my car loan after repossession? How do I get back on track? 


If your car gets repossessed, knowing what to expect and what your options for refinancing your auto loan are afterward can make the situation a little less intimidating.


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When can a car repossession happen?

Did you read the fine print when you signed your auto loan? If not, you might want to do so right now. Likely, there’s a clause that says if you miss X number of payments, the lender has the right to seize your vehicle to cover what you owe on the loan. A number of situations can result in your inability to make your loan payment. You might have lost your job and not have the funds to cover your bills. Or maybe you have an upside-down auto loan, meaning you owe more than the vehicle is worth and are struggling to pay it down. Some lenders may be flexible and give you a little leeway if you’re having a temporary financial issue. The key is to communicate with your lender (rather than avoiding its calls) to find a way to avoid repossession at all costs.

How to get your car back from a repossession

Whether you can get your car back after being repossessed depends on several factors. First, how many months you’ve gone without making a payment on your loan. If it’s been a month or two, your lender may work with you to let you catch up on late payments and get your vehicle back. If it’s been longer, the lender may sell your car at auction to recuperate the cost of the loan you didn’t finish paying. In addition to catching up on past-due payments, you may also have to cover costs associated with the repossession process, which could include towing and vehicle storage. It’s important to understand also that if your car is seized and sold at auction, you may still be on the hook. If the auction sells the vehicle for less than you owe, you will still be responsible for paying the balance of the loan. Let’s say you owe $3,000 and the car sells for only $2,000. You would still owe your lender $1,000, even though you no longer have the car.

Can you refinance a car loan after repossession?

So, can you refinance an auto loan after repossession? Possibly. It might make sense to refinance with the lender you already have a loan with. But realize you’ve got a lot working against you there, since that lender has already seen you miss payments and has had to go to the trouble of repossessing your car. However, your lender might consider giving you a refinance if you refinance over a longer period for a lower monthly payment, suggesting that you might be more likely to pay the second loan off on time.


If your original lender refuses, you’re not out of options for refinancing your auto loan after repossession. Check to see if you qualify with your bank or another auto lender. If you don’t, perhaps because your credit scores dipped due to that repossession, consider adding a cosigner to qualify for a refinance auto loan at a decent rate. The key here is to shop around. That’s just good advice for how to shop for a car loan in general, but it’s especially useful if you want to refinance after repossession.

Sample refinance options after repossession

Here are a few lender rates you might consider for refinancing your car loan after repossession, based on results found with the search terms “best repossession refinance loans” on July 5, 2021.

  • Red River Credit Union:  Starting at 2.99%
  • Refi Jet: Starting at 2.49%
  • Travis Credit Union: Starting at 2.09%

Watch out for predatory lenders

When you start looking for refinancing options after your car is repossessed, you may come across lenders who seem ready to bend over backwards to get you the refinance loan you need. But that comes at a price. These lenders may say that even if you have bad credit, you can qualify for a car loan. This could be appealing if you do indeed have bad credit. But look out for astronomical interest rates and hidden fees. Read the fine print carefully and don’t let a sales rep pressure you into financing you’re not fully on board with. Ask lots of questions. Thee might include the following:

  • What’s the monthly payment?
  • For how many months will you have to make payments?
  • What’s the APR?
  • What’s the total cost of the loan?
  • Are there prepayment penalties or other fees?

Finally, if your gut says something’s fishy, walk away.

How long does a car repossession affect your credit?

So does refinancing hurt your credit? No, but a car repossession probably will. It can result in negative marks that can stay on your credit report for seven years from when you stopped paying your auto loan and make it more difficult to get another loan. There are several ways the car repossession can affect your credit. First, you’ll have late or missing payments on your auto loan, which will be reported to credit bureaus. Then, if your car is repossessed, you’ll have a collection account on your credit report reflecting that.


If you don’t continue making payments on your repossession car loans, you’ll also have a mark for a defaulted loan. And you may also have a court judgment if the collections company was unable to collect the balance you owed. All of these derogatory marks may negatively impact your credit score.

Is a voluntary surrender better than a repossession?

There is one way you may be able to mitigate a little of the damage that getting your car repossessed can cause (including the embarrassment of having your car towed out of your driveway). It’s called voluntary surrender.

What is a voluntary surrender?

Rather than waiting for your car to be taken, you can reach out to your lender to inform it that you are unable to continue paying on the loan. You can then make arrangements to give up the vehicle of your own accord. This is called a voluntary surrender. A voluntary surrender may accomplish a few different things. First, when you reach out, the lender may want to work with you to find a way for you to continue paying the loan. Second, it will appear on your credit report as a voluntary surrender, which shows other lenders that you were cooperative in trying to work out a solution on your auto loan. Your credit scores will still be impacted, but it will show on record that you were responsible in trying to rectify the situation.

The Takeaway

It may be possible to refinance a car after repossession, but nothing is guaranteed. You’re probably better off if you can figure out a way to keep up with your payments and avoid repossession if you can.


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If you meet one or more lender’s and/or partner’s conditions for eligibility, pre-qualified and pre-approved offers from one or more lenders/partners will be presented to you here on the Lantern website. More information about Even, the process, and its lenders/partners is described on the loan inquiry form you will reach by visiting our Personal Loans page as well as our Student Loan Refinance page. Click to learn more about Even’s Licenses and Disclosures, Terms of Service, and Privacy Policy.


Student Loan Refinance:

SoFi Lending Corp. (“SoFi”) operates this Student Loan Refinance product in cooperation with Even Financial Corp. (“Even”). If you submit a loan inquiry, SoFi will deliver your information to Even, and Even will deliver to its network of lenders/partners to review to determine if you are eligible for pre-qualified or pre-approved offers. The lender’s receiving your information will also obtain your credit information from a credit reporting agency.


If you meet one or more lender’s and/or partner’s conditions for eligibility, pre-qualified and pre-approved offers from one or more lenders/partners will be presented to you here on the Lantern website. More information about Even, the process, and its lenders/partners is described on the loan inquiry form you will reach by visiting our Personal Loans page as well as our Student Loan Refinance page. Click to learn more about Even’s Licenses and Disclosures, Terms of Service, and Privacy Policy.


Student loan refinance loans offered through Lantern are private loans and do not have the debt forgiveness or repayment options that the federal loan program offers, or that may become available, including Income Based Repayment or Income Contingent Repayment or Pay as you Earn (PAYE).


Notice: Recent legislative changes have suspended all federal student loan payments and waived interest charges on federally held loans until 01/31/22. Please carefully consider these changes before refinancing federally held loans, as in doing so you will no longer qualify for these changes or other future benefits applicable to federally held loans.


Auto Loan Refinance:

Automobile refinancing loan information presented on this Lantern website is from MotoRefi. Auto loan refinance information presented on this Lantern site is indicative and subject to you fulfilling the lender’s requirements, including: you must meet the lender’s credit standards, the loan amount must be at least $10,000, and the vehicle is no more than 10 years old with odometer reading of no more than 125,000 miles. Loan rates and terms as presented on this Lantern site are subject to change when you reach the lender and may depend on your creditworthiness. Additional terms and conditions may apply and all terms may vary by your state of residence.


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Terms, conditions, state restrictions, and minimum loan amounts apply. Before you apply for a secured loan, we encourage you to carefully consider whether this loan type is the right choice for you. If you can’t make your payments on a secured personal loan, you could end up losing the assets you provided for collateral. Not all applicants will qualify for larger loan amounts or most favorable loan terms. Loan approval and actual loan terms depend on the ability to meet underwriting requirements (including, but not limited to, a responsible credit history, sufficient income after monthly expenses, and availability of collateral) that will vary by lender.


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9 crucial things to consider if you’re thinking of refinancing


Shontel Lawrence has always been savvy when it comes to interest rates. In 2018, when her landlord gave her the option to buy the condo she had been renting, she decided to hold off on the purchase and wait for mortgage rates to drop.

Lawrence kept her eye on interest rates for over a year. When they decreased in late 2019, she pulled the trigger and bought her condo with a 30-year mortgage at 4.1%. Lawrence continued to check on interest rates, though, and saw them drop even further in early 2020, leaving her to wonder if she acted too soon.

Then the COVID-19 pandemic hit, and with mortgage rates on the decline again, Lawrence, who was less than a year into her loan, decided to refinance.


Kanjana Jorruang / istockphoto


With mortgage interest rates at historic lows, you, like Lawrence and many homeowners, may be wondering if you should refinance. Is it just chatter, or does refinancing your home make sense for you? Here are some factors to consider.


If market rates were significantly higher when you first got your mortgage or your credit score has improved, it may be a good time to check the rates to see if you can refinance to earn a lower interest rate.

Lawrence, who is in the process of finalizing her refinance, will go from 4.1% to 2.3%. And her monthly payment will drop from $1,175 to $803, a $372 difference, which she plans to funnel toward her credit card debt. If Lawrence stays in the home for the entire 30 years, that’s $133,920 in savings.





Borrowers with conventional loans who put less than 20% down likely pay for private mortgage insurance (PMI).

If home values have increased since your purchase or you’ve made enough payments and are approaching 20% equity, refinancing could drop PMI from your loan. Even if you’re not at 20% equity, refinancing may lower the amount of PMI you pay.



designer491 / istockphoto


If you have an adjustable-rate mortgage, you might want to take advantage of this time to convert it to a fixed-rate loan. Depending on the terms of your mortgage, you may have already benefited from the recent rate decreases. But this could also be an excellent time to lock in a low rate and protect yourself against future increases.



Many homeowners choose to use home equity to fund home improvement projects, pay off high-interest debt, or make large purchases. If you were considering borrowing against your home in the future, striking while rates are at record lows may make sense.

You can opt for a cash-out refinance and walk away with cash-in-hand — up to the difference between what you owe and 80% of your home’s value. (VA cash-out refinances permit borrowing up to 90%). Just keep in mind that interest rates on cash-out refinances are typically higher than on straightforward refinances.

Other options to tap into your home equity include taking out a home equity loan or home equity line of credit (HELOC). Regardless of which path you consider, make sure you’re aware of the risks of tapping into home equity. Drawbacks include losing your home if you’re unable to keep up with the payments, potentially increasing your total debt and extending the amount of time it will take to pay off your mortgage.




Expect to pay between 2% and 6% of the loan amount in closing costs on a refinance. And homeowners who refinance conventional loans will have an additional charge after September 1, 2020. In light of the current economy, both Fannie Mae and Freddie Mac, government-sponsored enterprises, recently introduced a new refinance fee to offset potential lending risks. With this fee, borrowers pay an additional 0.5% of their loan amount when refinancing. For example, a homeowner with a $200,000 loan will have to pay an additional $1,000.

With some loan options or a no-closing cost refinance, you may be able to roll the refinance fees into the loan. Lawrence, a retired veteran from Clarksville, Tennessee, refinanced her home with a VA interest rate reduction refinance loan (VA IRRRL) and took advantage of that option.

Even if you’re not paying out-of-pocket, you should be aware of the total cost of your refinance and consider the additional interest you’ll be paying.


To see if the expense of the refinance is worth it, you should figure out your break-even point —  how long it will take to recoup the refinance cost. To figure yours out, take the total cost of the refinance and divide it by the amount you’ll be saving on your mortgage payment each month.

Lawrence’s refinance on her $206,500 loan adds up to $6,074. Since she’s saving $372 a month with her new payment, she’ll break even in roughly 16 months (not taking taxes, interest, or other factors into consideration). Lawrence plans to stay in her home for the foreseeable future, so the long-term savings outweigh the refinance cost. But if, for example, she had a potential move on the near horizon, it probably wouldn’t have made sense to refinance.


Photobuay / istockphoto


You could leverage today’s low rates to refinance your loan into a shorter term. For example, you could go from a 30-year mortgage to a 15-year mortgage. And since interest rates are lower for shorter terms, you’ll also get a more competitive interest rate.

Depending on your loan’s current terms, you may be able to get a shorter term without paying too much more than you’re paying now.

If you’re not looking for a shorter term, still be wary of restarting the clock on your mortgage. If you’re five years into a 30-year loan and choose to refinance, consider a 25-year mortgage, which perseveres the progress you’ve made on your mortgage rather than restarting the clock.




Refinancing now may be a good idea if you have less-than-ideal terms on your loan. For example, you could get rid of a balloon payment, combine two mortgages, move from seller-financing, or go from a government loan to a conventional loan.


SARINYAPINNGAM / istockphoto


If you’re experiencing financial hardship and need to reduce your monthly expenses, refinancing to a smaller payment could free up some funds. Of course, depending on your circumstance, it may be harder to qualify for a refinance. But some loan options, such as the VA IRRRL and FHA streamline refinance, don’t consider income.


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Featured Image Credit: Burhanuddin Helmi/istock.