Bad Credit
What Does it Mean When a Car Is Repossessed?
Having a car repossessed means it was taken away – and it’s not fun. Auto lenders have the ability to repo a vehicle if something goes awry. Here’s what you need to know about car repossessions.
What Is a Vehicle Repossession?
Repossession defined is a lender retaking possession of something that was financed. Repossessions aren’t limited to just vehicles, though, and they can be implemented and written in all sorts of loan contracts.
When a borrower takes on an auto loan, the lender fronts the cash to pay the dealer for the car. The borrower promises the lender to repay the amount, usually in the form of an installment auto loan with monthly payments.
If they stop making those payments, the lender can hire a recovery company to repossess the vehicle. Since the borrower hasn’t completed the loan, the lender has ownership rights. Their name is listed on the car’s title as “lienholder.”
The only way to remove a lien from a title is by paying off the loan. A borrower can either finish out the auto loan over time, or sell the vehicle for the loan amount and remove the lien. But until one of those things happens, if they stop making payments or break the loan contract in any other way, the lender has the right to repossess the car.
When it comes to vehicle repossessions, though, it usually happens because a borrower stops making payments and defaults on the loan. Another common reason for a repo is the borrower lapsed in their auto insurance coverage.
Auto lenders don’t repossess a car to “punish” the borrower for breaking the loan contract – they’re usually only doing it so they can resell the vehicle and try to make back whatever money they can.
What Happens to a Car After a Repo?
Most times, a repossessed car is prepped to be sold at an auction. This is done to try to cover the remaining auto loan balance.
Once the vehicle is sold at auction, the proceeds get put toward the loan balance. Anything that’s leftover is called the deficiency balance, which the borrower is responsible for. The borrower is also required to cover the fees charged by the recovery company hired by the lender to repo the car. If the vehicle was put in storage to await the auction, the borrower has to pay those fees, too.
After all is said and done, arguably the worst part of a repo (besides losing the car) is that there is a repossession listed on the borrower’s credit reports. Repos can lower a credit score, and most auto lenders don’t work with borrowers that have a repo less than a year old.
Over time, though, the impact of a repossession lessens. Most negative marks fall off of credit reports after seven years, including vehicle repos.
Getting Another Auto Loan After a Repossession
Since most traditional auto lenders don’t finance borrowers that have a recent repo, there are non-traditional car buying options to check out. There are dealerships that work with bad credit borrowers called buy here pay here (BHPH) used vehicle lots.
These dealers only sell used cars, but their financing is done in-house, so the dealership is also the lender. BHPH dealers don’t need to wait on another lender to approve the buyer for financing, which usually means skipping the credit check.
Borrowers with a repossession that’s less than a year old may be able to secure financing with one of these dealerships. However, credit repair sometimes isn’t on the table because these loans may not be reported to the credit bureaus.
For borrowers with a repo that’s over a year old, who still have a lower credit score, subprime auto loans may also be a good route. These auto lenders do review credit reports, but they take more than this into account to determine eligibility. Subprime lenders look at a borrower’s overall credit history, income, living stability, and many other factors.
They also report their car loans to the credit bureaus, so with on-time payments and careful management of the loan, there’s a chance for credit repair after a repo.
Finding a Dealership
Not every dealer can finance a borrower that has a recent repossession. Finding one that does can feel like a wild goose chase, but it doesn’t have to be that way! Here at Auto Credit Express, we’ve created a nationwide network of dealerships that are signed up with bad credit lenders.
To get matched to a dealer in your local area that has the lending resources you need, fill out our free auto loan request form.
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When you are in need of money quickly, you very likely don’t want to sit around pondering a bunch of different options. You want to find the option that works best for you and utilise it. Unfortunately for so many people around the country, it can be difficult to get their hands on the money they need due to them having a bad credit score, or even no credit score at all.
Photo, Varun Gaba.
Your credit score is thought of as being pretty important, as it shows your financial trustworthiness to financial institutions like banks, credit card companies, lenders, and more. Your credit score is one thing that will usually be considered by just about any company you apply for a loan through, so keeping a close eye on your credit score is imperative for your financial life.
No matter what your credit score looks like, knowing how you can prequalify for a personal loan can be a comforting feeling when you are in need of quick cash. After all, when you are eligible for personal loan prequalification, you feel a little better going into the loan process knowing you won’t have to wait around for a loan decision.
How is Pre-qualification Decided? Prequalifying for a personal loan can depend on several different factors that you will have to keep in mind, and it will vary greatly depending on the lender you are applying through. Here are two of the things you will need to keep in mind when it comes to your loan that could affect whether or not you prequalify for the loan.
— Your credit score; Yes, this is always going to be something you are going to need to think about. Depending on the financial institution or lender you are going through, you can bet that your credit history and score will play a huge part in whether or not you prequalify.
— The amount of your loan; How much money you plan on borrowing from the lender or bank is also going to play a part in deciding whether or not you prequalify.
To get the most out of your search for a lender that you could prequalify with, think about applying with more than just one lender. This way, you might get several pre-qualification offers, and this will allow you to sort through the lenders and decide which one works best for you.
Photo, Christina @ wocintechchat.com.
The Pre-qualification Process: No matter where you are trying to prequalify for your loan through, you will find the process to be pretty simple and largely similar across most lending platforms. You will need to provide some information to the lender that will help them decide whether or not to prequalify you.
Photo, Windows.
Some of the information you will need to provide includes:
— Your full name; You will want to make sure you provide your full legal name so you can make the process simple for yourself and the lender. Depending on the lender, you might also be asked to provide images of your government issued ID or driver’s license to validate your identity.
— Your income and information on your job; Your income and employment status are often considered over your credit score when it comes to pre-qualification for loans, especially if you are applying for a personal loan through a lender who deals with customers with bad credit or no credit.
— The loan amount you want; Of course, you will have to include the amount of money you would like to borrow. Make sure it is something reasonable, and something that you can realistically pay back on time.
What Will the Lender Do? If you are trying to prequalify through a lender who specialises in bad credit clients, then you won’t have to worry about your credit score being negatively affected by taking out your loan. However, if the lender reports to the credit bureaus, your payments could still make an impact on your credit score.
If not working with a specialised lender, you might find that the lender will do a soft inquiry on your credit when going through the pre-qualification process. No worries here, as this doesn’t put any dents in your score. If you prequalify for the loan you are looking for, you should get an alert via email from the lender of your choice.
The Money You Need: Hopefully, you will have prequalified for the loan you are looking for so you can ensure you have access to the money you need, when you need it. Whether you’re going through some unexpected circumstance in life or just need money to pay something off quickly, knowing you are prequalified for the loan you need is a comforting feeling, allowing you access to the cash you need for whatever you need it for.
Qualifying for a zero-down car deal likely means having good credit and qualifying income. However, if you’re a bad credit borrower, you’d be hard-pressed to qualify for an auto loan without a down payment. Besides – down payments are typically a great idea for borrowers across all credit ranges!
Is Zero Down a Bad Idea?
Opting for a zero-down car loan isn’t a bad thing – but with a lower credit score, it’s not likely to happen. Most bad credit auto lenders require at least $1,000 down or that you bring at least 10% of the vehicle’s selling price to the table. Down payments are a requirement of most subprime (bad credit) lenders, and it’s often called having “skin in the game.”
Research shows that borrowers with skin in the game are more likely to complete a car loan. To a lender, a borrower that brings a down payment to a deal is more likely to make their payments, complete the loan, and avoid default. It also means a higher likelihood of qualifying for the auto loan.
Down payments can widen your vehicle choices since they allow you to get into more expensive cars that are outside your preapproval amount. If you’re approved for a $15,000 auto loan, but can’t find anything for your situation, adding a larger down payment amount may open up more vehicle choices. In this scenario, if you have your heart set on an $18,000 vehicle, coming in with a $3,000 down payment could put it in your price range.
More Down Payment Benefits
Auto loans are typically simple interest loans, meaning you’re charged interest on the principal of your loan. If you combine a large loan amount, a high interest rate, and a long term, it can mean paying more than your vehicle is worth.
Remember this:
High loan amount + High interest rate + Long loan term = Paying more interest charges. A down payment can combat this, and help save you money.
For borrowers with poor credit, a high interest rate could mean paying more for your auto loan – but a down payment can soften the blow.
Down payments can help protect you from negative equity, too. Negative equity is when you owe more on the auto loan than what the car is valued at. Vehicles are depreciating assets, meaning they lose value over time, and that never stops.
Negative equity causes problems for borrowers when it’s time to sell the vehicle. If you owe thousands more on the loan than what you can sell the car for, you may not be able to sell the car. You must pay off the loan before you can transfer vehicle ownership.
If you finance a vehicle for $10,000, that car may not be worth $10,000 in a year. Most used vehicles lose around 10% to 15% of their value each year. Brand new vehicles can see around a 20% drop in value within the first 12 months of ownership! Having a down payment can help keep your auto loan in an equity position, which means you’re likely to have fewer issues selling the car if you need to.
How Much Should Save for a Down Payment?
Your down payment requirement largely depends on your credit score and the size of the loan you’re applying for. Like we mentioned, saving at least $1,000 is probably a good starting point if your credit score is less than perfect. But if the vehicle you want is expensive, it could mean having to shell out more cash than that to qualify for the loan.
How much you need to save can also depend on your monthly budget. If you want a specific vehicle but the monthly payments are too high, you can put more cash down to lower your payment and make the loan work for your situation. You can use our auto loan calculator to estimate how much you may need to put down to get your car payment where you want.
You also don’t need cold, hard cash to meet a down payment requirement. Trade-ins with equity can completely satisfy a down payment requirement if there’s enough value, or you can use a combination of cash and your trade-in. If you have a car you’d like to trade in, research its estimated value on sites such as NADAguides and Kelley Blue Book so you can see what a dealer may offer.
The bottom line with down payments is you should save as much as you comfortably can afford. Even if you qualify for a zero-down car loan, putting cash down on your next auto loan is only going to bring you benefits in the long run.
Where Can I Find Bad Credit Car Loans?
If your income or credit score isn’t quite up to snuff, then you can expect to need some cash down to qualify for vehicle financing. You may also need to work with the right auto lender to get the vehicle financing you need.
With a lower credit score, not only are you faced with a down payment requirement but also the struggle of having to find an auto lender that can work with poor credit. Most traditional auto lenders prefer borrowers with good credit. If your credit score is rough around the edges, then applying for vehicle financing through a special finance dealership could be the way to go.
Special finance dealerships are signed up with subprime lenders. These lenders specialize in assisting borrowers with credit challenges and look at more than your credit reports and score. They do require a down payment, but they can often work around tough credit circumstances.
At Auto Credit Express, we’ve amassed a nationwide network of special finance dealerships and we want to help you find one in your local area. To get matched to a dealer near you that has bad credit lending options, fill out our free auto loan request form.
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