What Are the Credit Effects of a Car Repossession?

If you fail to abide by the payment terms in your auto loan contract, your car will be repossessed, whether the bank seizes it or you make the return yourself. The MyFico website warns that each individual's credit is impacted differently after non-payment of a loan, but expect your credit score to decrease significantly after repossession.

Repossession On Your Credit

Future creditors will see that you didn't pay your auto loan and your vehicle was repossessed. Creditors, employers or landlords viewing your credit report can also see the total amount you borrowed, the number of payments you've made, the number of times you were late, the date of the repossession and the balance due on the loan account after repossession. For the next seven years, the impact of the repossession on your credit score decreases, but the immediate affect on your credit score is significant. Expect your score to decrease at least 100 points.

The Balance Due

When you signed your loan contract, you agreed to pay for the total amount of the vehicle, including fees. Repossession doesn't excuse the promises you made when signing the contract. Your auto loan provider will resell your vehicle in an attempt to satisfy your loan balance. Most sales are completed at auction, where sales warrant wholesale pricing, which is similar to trade-in value. Expect a letter from your lender after the sale stating the amount due on your loan. The amount due is shown on your credit report as unpaid.

Settling or Paying the Account Balance

If you pay the total balance due on the loan, the loan account will read as "paid" on your credit report. The repossession notice, however, still remains on your report. Paying the deficiency in full may help you to obtain future lines of credit. If you settle the balance, your credit report will say so. If you don't pay the balance at all, the loan account balance remains open and unpaid. If the lender sells the debt to another company, the debt-collection company's information and the loan's balance may reappear on your credit report as a second derogatory mark.

Improving Credit

Over time, your credit can improve if you pay other lines of credit on time and avoid additional derogatory reports. To track your credit score immediately after repossession and over time, you'll have to purchase your credit score from the three credit bureaus: Experian, TransUnion and Equifax. Your auto loan provider might report to one or all three bureaus. After several years pass after the repossession and you've made efforts to improve your credit rating, you might obtain other lines of credit. Expect to pay a higher interest rate or provide a higher down payment toward a loan until your credit score improves and your lending risk decreases.