When you stop making your car payment and eventually have it repossessed, getting another car can be challenging. Most auto lenders will be unwilling to work with you if you have a recent repossession on your credit history. However, some lenders are still willing to finance a car for you regardless of what is on your credit.
Damaging Your Credit
When you have your car repossessed, it will significantly damage your credit score. Even one missed payment lowers your credit score by as much as 110 points, according to the MSN Money website. If you miss several payments and then ultimately have your car taken away, this will lower your score even more. At that point, the repossession stays on your credit report 7.5 years from the time that you were first delinquent on the monthly payments. Creditors can see it on your credit report during that time.
Buy Here, Pay Here
When you have a repossession on your credit history, traditional lenders will typically not extend an auto loan to you. At the same time, some lenders known as "Buy Here, Pay Here" lenders finance customers regardless of what is on their credit history. With this type of arrangement, the lender may not even use a credit check. If you get this type of loan, you go back to the dealer every week or month and make payments on the car.
Costs
If you work with this type of lender or with a subprime lender, the interest rate that you must agree to will be high. In fact, the interest rates are much higher than what you could get with a traditional auto loan. Lenders have to charge this type of interest rate to protect themselves from the risk of giving loans to people with bad credit. This way, when customers stop making their payments, the lender can still make money off of the other customers.
Considerations
After a repossession, waiting longer to get a car loan may work to your advantage. As time passes and the repossession gets further and further into the past, lenders will not put as much emphasis on it. If you take the necessary steps to rebuild your credit score, you may qualify for a traditional loan before the repossession is removed from your credit report. Pay off your credit balances, make your payments on time and use credit sparingly. By taking these steps, it improve your chances of getting a traditional loan.
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