How to Finance a Repossessed Vehicle

Once your lender repossesses your vehicle, you may have an opportunity to purchase it back before it is resold privately or at auction. Expect to pay for the loan's payoff amount in addition to late payments and repossession fees. You may face issues when applying to an auto loan provider for another loan, as potential lenders require that all loan accounts be current and not in default. Even though you're behind in payments, you still may obtain a loan approval.

Instructions

Obtain a Loan Approval

1

Call your current lender to obtain the vehicle's total purchase price. You should receive a letter that outlines the costs and options of reclaiming your car. Find out how long you have to pay for and retrieve your vehicle before it is resold.

2

Apply for a loan with any lender you'd like. You may have to seek out a co-signer or use a subprime lender, but try to obtain a loan from a traditional lender on your own first. Visit auto loan provider websites to view rates and options or apply at a bank or credit union in your area.

3

Give your potential lender your vehicle information; have your VIN (vehicle identification number), year, make, model and mileage ready. Fill out a credit application, providing your name, address, Social Security number, date of birth, employment information and income information.

4

Wait for your approval decision, which can take several days. If your loan request is denied, use a co-signer if possible. Find a co-signer who has good to excellent credit and an annual income of over $22,000.

5

Apply to the same lender or a different one with your co-signer. Using a co-signer allows you to take advantage of lower rates, longer terms and lower down payment requirements. Your co-signer can go with you to a lender to provide an application or call on his own to offer information and verify identity.

6

Apply for a loan from a subprime lender if you can't find a co-signer. Locate a subprime lender online or locally. Call a a potential lender if necessary to ask questions before applying, as interest rates can prove as high as 29 percent in some states through a subprime lender.

Paperwork

7

Go over loan approval terms with your lender, whether using a local bank or credit union, online lender, co-signer or subprime lender. Ensure your payment terms are affordable and you can supply a down payment if one is requested.

8

Give your lender any information it requests. You may have obtained an approval, but many lenders require proof of income (your most recent pay stub), proof of address (a recent utility bill) and proof of employment to verify your employment history before your processing your loan check. Fax or email the information if the lender is not in your area.

9

Make changes to your car insurance policy and provide the lender with proof of insurance promptly.Your lender must be listed as the policy's lien holder. Full coverage insurance is a requirement of most lenders, so ask your lender for the amount of coverage you need.

10

Sign your loan contract. If the lender is not local, ensure the paperwork is sent to you by the next day or that the paperwork will be processed within the time frame you have to purchase your vehicle before it is resold. Keep your copies of the loan contract and obtain your check, which should be made out to your original lien holder.

11

Pay your old lien holder provider promptly. Talk with your previous lender to find out where you can offer your check; you may be required to pay the place that is holding your car. Make your payment and retrieve your vehicle.

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Auto Equity Loans Vs. Title Loans

When you need cash fast and you own a car outright (no liens on the car), you have different options available to use your car as collateral to secure a short-term cash loan. For many people, especially car owners with bad or poor credit, this represents a good way to fulfill some immediate financial obligations.

Auto Equity Loans

Auto equity loans are very popular in the United States. In fact, most check cashing businesses offer auto equity loans to car owners who are willing to collateralize their vehicle. Loans of this kind have to be paid back in a certain period of time and you are charged interest on the loan amount that's outstanding. If you don't pay the loan back in the specified period---by the end of the "term"---then the lender has the right to take your car. These types of loans are typically handled in face-to-face transactions.

Quick Cash Auto Loans

There are also quick cash auto loans for vehicle owners. This type of car loan allows you to borrow up to $2,500. Quick cash auto loans can be applied for online, and while there isn't a credit check, you do have to own your car outright and have auto insurance coverage on the car you're using as collateral for the loan. Typically, quick cash auto loans have a term of 30 days, but can be extended for an additional fee.

Title Loans

Title loans require you to sign over the car you own outright to secure the loan. Car title loans usually have a 30-day term and must be paid in full at this time or you can lose your car. While a title loan does not require a credit check, it does require income verification---usually by showing at least two recent pay stubs.

Advantages

Generally speaking, using your car as security is a quick and easy way to obtain cash fast. Equally enticing is the fact that credit checks are not performed, so those with less than stellar credit reports can enjoy peace of mind that a low credit score won't disqualify them.

Disadvantages

There are several disadvantages to these types of loans. First, the interest rate you pay is typically a lot higher than other types of loans and even more than some consumer credit cards. Some charge as much as 25 percent or higher. The second disadvantage is that if you don't pay the loan back in time, you can have your car repossessed. With that comes a third disadvantage: there is little state regulation of car title lenders. So if you run into problems, you may have a difficult time getting a fair, speedy resolution.

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Disadvantages in Buying a Salvage Vehicle

A car or truck is a salvage vehicle if the insurance company deemed it a total loss, often due to the estimation that the cost to repair the vehicle is more than its value. The vehicle likely has been in a major accident, has been through a flood, or has other significant problems with its frame, body or parts. Although salvage vehicles are much less expensive than comparable used cars with clean titles, they have a number of disadvantages as well.

Cost to Repair

If you are buying a salvage vehicle that has not had any repairs done to it yet, you will be responsible for bringing it back into working condition. If the damage was greater than you anticipated, you might end up spending more on repairs than you saved by purchasing a salvage vehicle. Even after the initial repairs, you could find more problems as the car continues to break down or not work properly.

State Regulations

Many states require that salvage vehicles pass safety inspections before they can be registered in the state. After the vehicle passes inspection, the stamp on its title may be changed from "salvage" to "rebuilt," which adds some resale value to the car. Some states do not revise titles to reflect the "rebuilt" status until the car has been successfully on the road for a specific period of time.

Difficult to Insure

Insurance companies are often wary of insuring salvage vehicles because they are not in normal condition and may lack safety features. If you find a company that will insure the car, you will likely not be able to purchase comprehensive and collision coverage, which would pay for repairs to your car if you got in an accident. Driving a salvage car without liability insurance is illegal, and driving without full coverage can be risky because you would have to pay for all the repairs to the vehicle if it were damaged.

Lower Resale Value

A salvage vehicle will never have a clean title, as it will always be marked either as "salvage" or "rebuilt," depending on the car's status and the regulations in your state. This means that when you go to resell the vehicle, potential buyers will know that the car has had significant repairs and will not pay the same amount for it as they would for a car with a clean title. Buyers may also be wary of purchasing the car because of all the same reasons that you were, including difficulty insuring it, lack of confidence in its reliability and its decreased value if it were ever sold in the future.

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How Does a Car Lease Affect Your Credit?

Those who purchase cars with an auto loan can affect their credit history significantly with the actions they take surrounding their loan. Individuals who lease cars can also affect their credit histories. The way you make your lease payments can help or hurt your credit score and your chances of getting future credit.

Same as Buying

When you lease a car, you may not think that it is affecting your credit as much because you are not actually borrowing the money to buy one through an auto loan. In reality, getting a lease is basically the same as buying a car when it comes to your credit report. You are opening a new account and you are on the hook for the total amount of your lease. Lenders will count this as a debt when evaluating you for credit.

On Time Payments

When you have a car lease, you also have the ability to significantly improve your credit score. Most leases last for three years or more. If you can make your payment on time every month, this will boost your credit score over that time. Your payment history is one of the most important factors when calculating your credit score. If you can always make your payment on time, this will help your score and make you a more attractive borrower in the future.

Early Termination

After taking out an auto lease, sometimes you have to terminate the lease early. When this happens, it can have serious negative repercussions for your credit. This is basically the same as defaulting on a loan. The account will show up on your credit report after you have already turned the car in to the dealer. This can seriously hurt your chances of getting credit in the future. Car dealers will also be skeptical of working with you again unless you pay a high interest rate.

Making a Deal

If you need to get out of your lease, there are ways to approach it that will not hurt your credit. In this case, you should talk to the dealer about making a deal. You could pay a buy-out fee to the dealer and then the dealer will let you out of your lease. This will not be reported to the credit bureaus as if you defaulted on an auto loan and the dealer had to repossess your car.

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How to Secure Payment When Selling a Car

Selling a used car can be a headache, but the challenge only grows when a buyer needs to finance the purchase rather than paying cash outright. In the event you decide to take the risk of allowing your car's buyer to make payments, you will need to take steps to make your transaction as transparent and secure as possible. Taking the right actions to protect yourself at the outset will reduce your risk in the event of later nonpayment by the buyer.

Instructions

1

Execute a written sale agreement with the buyer. In this agreement, detail exactly what you are selling to the buyer for what price. Include the Vehicle Identification Number (VIN) in the sale agreement to identify the vehicle being sold. State what additional accessories and equipment, if any, you are transferring to the buyer along with the car. Specify that the purchase is "as is," with no warranties.

2

Execute a promissory note with the buyer. The note provides evidence of the buyer's obligation to repay you the financed amount, specifying the interest rate and maturity date of the loan. Many sources offer form promissory notes that you can use when selling your car, but read the entire document to make sure it actually applies to your situation.

3

Execute a security agreement, or "financing statement," with the buyer. This document constitutes the buyer's pledging of the car as collateral for your loan. Require the buyer to maintain collision insurance on the vehicle for the life of the loan. Be sure to include a right of repossession in the event of nonpayment; without this, you have no right to repossess the car. Under the Uniform Commercial Code, your security interest is not perfected until you file it with the appropriate authority in your state. This will generally be the office of the Secretary of State or a similar official.

4

Take the appropriate steps to place a lien on the vehicle title in your state. Generally, this involves submitting the bill of sale and an application form to the Division of Motor Vehicles. The new title in the new owner's name will show you as having a lien on the vehicle.

5

Retain possession of the new title in a safe place along with all other evidence of your transaction. When the buyer has paid off the loan, release the lien on the title in the space indicated and forward it to the buyer. In the event the buyer defaults on the loan agreement, consult an attorney licensed to practice in your state before repossessing the car to ensure that you comply with all state-specific legal requirements.

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How to Refinance a Used Vehicle That Is Upside Down

Refinancing your auto loan even if you owe more than it is worth, also known as being "upside down," is a possibility. Banks determine a vehicle's loan amount based on its value and your credit. If you have good to excellent credit, you may borrow up to 120 percent of your vehicle's value, which can help with negative equity. Otherwise, you may have to put money down.

Instructions

1

Call your bank to obtain your car loan's payoff amount; you need it to apply for your refinance. Locate your title or an insurance card to view your vehicle's year, make, model, level and vehicle identification number. Have this information ready to supply with your loan application.

2

Inspect your vehicle and write down any extra options it has. Your vehicle's loan value is also based on its options, which increase value. Note options such as a sunroof, leather interior, alloy wheels, navigation system or add-ons like side-steps, a roof-rack, brush-guard or tow hitch.

3

Go over your funds to determine how much money you can afford to put toward the loan. If the bank requires money down, you will already have an idea of how much money you can devote. Go to bank websites or call in to determine rate offers for used cars to determine the one that best suits your refinancing goal.

4

Apply to the new lender for your refinance. You can do this over the phone, in person or through the bank's website if it allows. Provide your personal and vehicle information, including its payoff amount as your intended loan amount.

5

Wait for notification of your approval or decline. The bank should contact you within one week to discuss your application. Discuss your term and approval rate with the bank representative.

6

Make an appointment with the bank representative and make a note of any items required for the loan, which usually includes the vehicle's title and proof of insurance. Contact your insurance agent to add the bank as the vehicle's new lien holder and obtain proof of coverage.

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Does Refinancing a Car Hurt Your Credit?

You can save thousands of dollars during the life of your car loan by filling out a 10-minute application to refinance your car loan. Refinancing a car loan takes your old loan and gives you a new one with better rates and terms. This strategy could hurt you slightly in the short-term, but the long-term benefits of refinancing usually outweigh the negatives.

Identification

Because refinancing your car loan shows up on your credit report as a new loan and requires a credit check, it could "ding" your score a few points, according to BankRate. As long as you have a good credit score -- above 720 -- this has almost no effect on your ability to get credit or the best interest rates.

Considerations

A credit check for auto-loan refinancing could hurt your score a lot more if you apply for several other types of refinancing at the same time. The shorter your account history and the more accounts you have, the more credit checks will affect your score. Also, if your refinancing stretches out the life of the loan, this extends the life of your debt obligation, making you look riskier to lenders.

Time Frame

The FICO (Fair Issac Corporation) credit scoring methods takes into account the average length of the accounts on your credit report. Refinancing an auto loan pays off your old loan, opens a new account and shortens your credit history. On the other hand, reducing monthly payments lowers your debt-to-income ratio -- a preference of lenders.

Tip

If you plan to refinance your car, put in all applications at the same time. The FICO score counts all inquiries as a single inquiry if you "rate shop." If, for example, you apply for a car loan with five different lenders, your score would only reflect one inquiry instead of five. All applications must occur within 14 days of the first application. You can avoid refinancing in some situations by asking the lender to reduce the interest rate on your loan.

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