Can I Trade in My Car When It Is About to Be Repossessed?

You can trade in a car if you are behind on payments, but the process might prove difficult. Most lenders require up-to-date accounts, meaning you'll have to pay the past-due amount. Late payments also affect your credit score, which ultimately affects your chances for a new loan and fair interest rate.

How the Dealer Knows

Let the dealership know that your vehicle is about to be repossessed. Even if you bring your vehicle's loan payoff amount or arrive after bank business hours, the dealership will obtain your loan payoff directly from your lender before completing a car sale. The automated payoff system that banks and dealers use will not offer the loan's payoff amount. When your sales representative calls to obtain the information, she will be transferred to your lender's collection department.

Dealer Variations

The dealer can require you to pay your past-due payments or tell you it won't accept your vehicle for a trade until the loan is current. Your dealer might even offer to give you cash back from your new loan to pay the past due amount. Regardless, the dealer must pay off your loan to take your car as a trade. If you can obtain a new loan through the dealer, he may speak to the bank's collection department to discuss the loan payoff date so you don't have to make additional payments.

Pursuing Another Loan

Lenders review all of your credit information, including past-due accounts. Most require up-to-date payments on any revolving accounts. If you have a poor payment history or low credit score, you might not obtain an approval from a new lender. Work with a dealer to find financing, it may be able to find you a loan, even with a high interest rate if no other options exist. Obtaining a new loan while another one is past due is likely to cause lending issues.

Declines

If you can't find a new lender to approve your loan, try to find a cosigner. Or, catch up on your old loan as soon as possible. Repossession damages your credit score and history, making it hard to receive a loan in the future. Talk to your lender to work out a payment plan so you can keep your car. Once you become current on your car loan and maintain a positive payment history again, trading your vehicle is a possibility.

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Motor Vehicle Repossession Laws in South Carolina

People often find themselves struggling to pay car loans. When this happens, lenders can repossess, or take back, the car. They can then sell it to satisfy the loan amount. In some instances, the lender may choose to keep the repossessed car rather than sell it. Like all states, South Carolina has specific rules governing when and how cars can be repossessed.

Default Rules

South Carolina allows lenders to repossess motor vehicles when borrowers default. Some lenders consider a borrower in default if she allows the car's insurance to lapse, permanently moves the vehicle out of state without authorization or damages the car to decrease its value. Typically, however, default means a person is 10 days late on a payment. At this point, the lender must send a "Notice of Right to Cure" informing the borrower that she has 20 days to bring the loan current to avoid repossession. Note that, if you catch up on your payments but fall behind a second time, your lender can repossess your car with no notice.

The Repossession

Lenders have two repossession options in South Carolina. One involves filing a Claim and Delivery lawsuit against you. Theoretically, your car cannot be repossessed under a Claim and Delivery suit until after you and your lender appear at a court hearing. The lender can, however, be granted permission to repossess before the court date if he can show reason to believe that you will hide or damage the car. Under the second type, self-help repossession, the lender can simply come and tow your car from any location--your driveway, your workplace, the street or a parking lot. The only stipulation is that it be done peacefully.

Reclaiming Your Car

You have the right to reclaim your repossessed car. After repossessing, the lender will send you a Right to Redeem notice explaining what will happen to the car and how you can get it back. The lender can require you to pay off the entire balance and may also make you pay expenses associated with having repossessed your car. Borrowers have only about two weeks to meet the requirements. After that the lender is entitled to do as he pleases with the car.

If You Can't Reclaim the Car

South Carolina law allows a lender to sell a repossessed car if the borrower is unable to reclaim it. If the borrower has paid 60 percent or more of the loan, the borrower can force the lender to sell the repossessed car within 90 days. Any money left after settling the loan and covering the expenses associated with selling and repossessing the car must be given to the borrower after the sale. If the borrower has paid less than 60 percent of the loan, the lender may sell the car. If the lender gets more money than was owed on the car, he may keep it. If he gets less, he may go to court and seek a judgment against the borrower for the difference between the amount owed and the amount actually received for the car. Attorney fees, repossession costs, sales costs and car repair costs may be added to this judgment.

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Can I Get an Auto Loan Even If I Have No Job?

When a person has no job he may find it difficult to take out a loan. This is because the lender may be unconvinced that the person will be able to pay the loan back, as he does not have much, if any income.However, he may be able to take out a car loan if he can provide the lender some alternative reassurance that he will pay back the debt.

Down Payment

A finance company will generally seek a down payment for a car loan, regardless of the borrower's financial or credit history. However, a person who does not currently have a job may have to make a larger down payment. Not only does a down payment allow the lender to recoup some of his money, but it allows the lender more security because he knows the borrower has already put money into the car.

Credit Score

Any lender will also want to know a borrower's credit score. As a borrower's credit score will not be affected by her employment status, a good credit score can go a long way to convincing a lender to loan the person money. A good score will show that she has paid back loans in the past, meaning that she is financially responsible. This can partially offset a lack of income.

Assets

In lieu of income, a borrower may be able to show a lender that he has a large amount of assets, such as savings or a portfolio of investments that, if push came to shove, he could use to make payments on the car loan. This may help satisfy the lender that he is financially capable of paying back the loan, although a large number of assets is not as valuable as a steady income.

Alternative Income

Just because a person does not have a job does not necessarily mean that she is not making any money. Many people who are unemployed still have money coming in, such as through severance payments, unemployment insurance and returns from investments. Showing these to a lender may convince a lender to make the loan, particularly if the income is not just temporary like unemployment benefits but steady, like income from a rental property.

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How Do Car Dealers Check Your Credit?

Most people who buy new or used cars that cost more than a few thousand dollars plan to finance their vehicle by making a down payment and taking out a loan with monthly payments for the remainder of the purchase price. The amount of the down payment and the interest rate and duration of the loan are the key factors in determining the size of the monthly payment.

Filling Out a Loan Application

The first step in getting a loan from a car dealer is filling out a loan application. The application will at a minimum require your full name and address, Social Security number, banking information and annual income.

Checking Your Credit

One of the boxes you check on the loan application authorizes the dealership to check your credit. The finance department at the car dealer will use the information to check your credit score at a credit bureau such as Experian, Equifax or TransUnion. Most car buying experts stress the importance of knowing your credit score before shopping for a car so you can more effectively negotiate a loan.

FICO Score

Most dealerships do not order an entire credit report (which costs more), and just receive your FICO score (sometimes just called credit score). Your FICO score is a number between 300 and 850 that reflects your credit history. You generally will get the best available interest rate with a score of 750 or above. Anything below 650 usually means you will only qualify for a high-interest-rate subprime loan.

Good Credit, Bad Credit and Car Loans

Keep in mind that your credit score is just one factor in the loan decision-making process. While a very high credit score will almost guarantee you a low interest rate, lenders do consider other factors. Your income, years on the job, length of current residence, home ownership, total debt load, debt mix and other factors go into the loan decision, so do not despair if your credit score is not great.

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How Does Auto Loan Interest Work?

Auto loan interest is usually calculated using a simple interest formula, as opposed to a compound interest formula. This means that your monthly payments include principal and interest paid only on the principal (and not on incurred interest balance).

Basics

Common auto loans are established for 36- to 72-month payoff terms. Similar to home mortgages, auto loans are paid on an amortized schedule that takes into account the principal, interest rate and loan period.

Formula

Your total interest paid over your loan term is calculated by multiplying the original principal balance by the interest rate and multiplying that total by the loan term in years.

Function

Your initial loan payment has the highest proportion of interest to total payment ratio. Each month's payment has a portion applied to the principal balance, which reduces your principal. This means the next month's interest will be calculated on a lower balance. By paying additional principal as possible, you can pay less total interest over the loan term.

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Tips on Buying a Car With the APR Based on the Credit Score

Your credit score is an important player in the purchase of a new or used vehicle. Unless you have the cash on hand to buy the vehicle outright, you're going to finance at least a portion of the vehicle's price. There are several strategies you can employ to manipulate the interest rate attached to your auto loan to net you the largest savings and the lowest possible rate.

Clean Up Your Credit

If you don't have a lot of cash saved up to put a down payment on a vehicle, the best thing you can do to secure a low interest rate on a car loan is clean up your credit score. This strategy begins three to four months before purchasing a vehicle and involves you paying down your monthly revolving accounts, like credit cards, as much as possible. The more available credit you have in your credit accounts, the better your credit score is going to be because credit bureaus interpret this as responsible use of available credit.

Incentives and Rebates

If you have good enough credit to get the car loan you need but the interest rate is undesirable, try targeting a vehicle on the lot with dealer buying incentives like a rebate. You can often use this rebate to act as a down payment for the vehicle which lowers the overall amount you need to finance which can in turn lower your interest rate. This may require you to compromise on the vehicle you want to buy but it could also be the difference in you affording a car and having to walk to work.

The Down Payment

A cash down payment lowers the overall amount you need to finance to purchase a new or used car. This is particularly important if your loan interest rate is based solely off your credit score. If you have borderline good credit/bad credit a bank or other lending institution may be hesitant to loan you a large sum of money so the more cash you can apply directly to the cost of the vehicle the better. A serious cash commitment can also lower your loan's interest rate as the lender is able to see your serious commitment to the purchase.

Beware of Zero Percent Financing

You see advertisements all the time for automobiles with "zero percent financing." What you miss is the end of the commercial when the announcer says, "for qualified buyers." This means you could be lured down to the dealership with promises of thousands of dollars in savings only to lose out because your credit score doesn't qualify you for the sale. Always have all the information on this type of incentive before consenting to have your credit report checked by the dealership.

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Problems With Taking Over Payments When Selling a Car

When you find the car of your dreams, you may go through extreme lengths to obtain that vehicle. This could include taking over someone else's car payments. This is a risky transaction, even if you're taking over the payments of a friend or relative. If you do decide to take over someone else's car payments, your safest bet is to go through the lender.

You Don't Own the Car

If you take over payments for a friend, relative or even a random seller and you don't go through the bank to have the loan transferred to you, you don't legally own the car. You're therefore making payments on a vehicle you don't own. If the owner of the vehicle decides at any time that she doesn't want to sell you the vehicle, there are an abundance of legal issues that can arise. The seller could decide at any time that she wants her car back --- you'd be in a legal dispute over ownership of the vehicle.

In the Event of an Accident

If you get into an accident in the car that you're making payments on and the car isn't legally yours, the insurance check for the damage to the vehicle may go to the owner of the car. New cars usually have gap insurance, which covers the gap between what's owed on the car and what the car is worth, according to Progressive. If the car you're making payments on is "totaled," a dispute may arise over who gets to keep the check from the insurance company.

In the Event of Car Repair

If the car you're making payments on needs repairs, you may have problems when you take it to the repair shop because you're not the registered owner of the vehicle. If the repair shop does allow you to have repairs done on the vehicle, legal problems could arise if you're not satisfied with the work that was performed on the vehicle.

If You Go Through the Lender

If you go through the lender and the vehicle is on a lease, you can have the lease transferred from the other party over to you. The problem here is that you may not have the same financial situation as the person to whom the vehicle was originally leased. According to Loan.com, if your credit isn't as good as the original lessee's, you may have to obtain a new loan with different terms. If your credit is poor, the financial institution that leased the vehicle to the other party may not do business with you.

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