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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Related: 10 personal finance basics
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.
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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