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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People often worry about their credit history when it comes to applying for a new credit card, a mortgage or a car loan. If you have poor credit, should you also be concerned about finding work? Can you be denied a job due to bad credit?
Let’s examine the facts.
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What is bad credit anyway?
Bad credit is basically a negative assessment of your finances based on your history of borrowing. Bad credit implies that you have a bad track record with lenders. This is most likely because you have a pattern of not paying your bills on time or defaulting on your loans.
Is it legal for employers to check my credit report?
Law and finance firms are legally required to perform credit checks on potential employees. However, other kinds of employers can also conduct credit checks on you before they hire you. But they must ask for your permission before they do so.
In many cases, a credit check will be performed by a company if the role you are applying for involves dealing with large amounts of cash.
Why might employers want to check my report?
There are many reasons an employer might want to check your report. For example, they might want to ensure that:
- You are who you say you are.
- You have a good track record of managing money.
- It’s not too much of a risk to let your manage money.
- Your financial behaviour will not affect your work performance.
Could you be rewarded for your everyday spending?
Rewards credit cards include schemes that reward you simply for using your credit card. When you spend money on a rewards card you could earn loyalty points, in-store vouchers airmiles, and more. MyWalletHero makes it easy for you to find a card that matches your spending habits so you can get the most value from your rewards.
Can an employer deny me a job due to bad credit?
Yes. According to credit reference agency Experian, if your prospective employer feels that your current financial situation could impact your ability to perform well in the role, or if your credit history shows poor financial planning, they may decide not to hire you.
Generally speaking, however, employers are more likely to be concerned about serious ‘red flags’ in your credit history, like bankruptcy rather than the odd missed payment.
In any case, employers only get access to your ‘public’ credit report. This contains your electoral roll information and any major red flags such as bankruptcies, individual voluntary arrangements and county court judgments.
They will not have access to your detailed credit repayments or your credit score.
How can I keep my credit history from affecting my ability to get a job?
If a prospective employer runs a credit check on you, ultimately you have no control over what they do with the information, including denying you a job due to bad credit.
The best thing you can do to minimise the impact of your credit on your chances of getting a job is to review your credit report beforehand.
You have the right to one free credit report per year from each of the three credit agencies (Experian, TransUnion and Equifax). Before you apply for a job or attend an interview, request your report and review it for any errors so that you can have them corrected ahead of time.
Even if there are no errors, knowing what is on your credit report puts you in a good position to answer any questions that may arise during the hiring process.
Indeed, if there’s something in your report that employers might consider a ‘red flag’, don’t panic. Instead, begin preparing an explanation to give to them. If it was, for example, caused by financial hardship beyond your control, the employer may take this into account.
Alternatively, you can contact a credit reference agency and request that a notice of correction be added to your report. This is a brief note of up to 200 words in length that explains circumstances that a lender might otherwise question.
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Refinancing is a wonderful way to save money on your monthly car loan payment – but it can cost you more in the long run if you’re not careful. Refinancing when you have a subprime auto loan isn’t always as easy as refinancing a vehicle when you have good credit. Working with the right lender can help, though.
What Is Refinancing?
Refinancing is when you replace your existing car loan with a different one for the same vehicle, which may have either a lower interest rate, a longer loan term, or both.
Qualifying for a lower interest rate is optimal for getting a lower monthly payment and saving money overall. If you only extend your loan term without getting a lower rate, you actually end up paying more in interest charges over the term of your loan.
Auto loans typically use a simple interest formula, meaning your interest charges add up daily. The longer your loan term, the more you pay the lender – it’s wise to choose the shortest loan term you can afford. If you only extend your loan term you may end up paying more than the vehicle’s value!
Refinancing can typically be done with your current lender or with another one. It’s a good idea to shop around for the best possible rate before going with the first offer you receive. When you shop for the same type of financing with multiple lenders in a two-week timeframe, it’s called rate shopping. When you do this only one credit inquiry impacts your credit score instead of multiple, minimizing the negative impact that hard pulls can have on your credit score.
Options for Bad Credit Borrowers
Taking out a subprime auto loan is a great way to improve your credit, so, if you’ve kept up with your loan to this point and just need a little wiggle room in your budget, refinancing could be for you. Your credit is an important factor in refinancing your auto loan because refinancing is typically reserved for people with good credit.
However, when a borrower already took out a subprime car loan, many refinancing lenders are willing to work with them as long as they’ve made improvements to their credit over the course of the loan. Better credit alone doesn’t qualify you for refinancing, though.
In order to qualify for refinancing, you, your vehicle, and your loan all need to meet the requirements of a lender. These vary, but in order to refinance your car you typically need to meet these qualifications:
- Have a better credit score than when you began the loan
- Have had your auto loan for at least one year
- Have an acceptable loan amount
- Have no more than 100,000 miles on your vehicle
- Car can’t be more than 10 years old
- You must be current on your payments
- There can’t be negative equity in the vehicle
Lenders that refinance typically prefer cars that are in good condition, that aren’t too old, and have lower mileage. Some lenders may not want to refinance a vehicle that’s at risk for breaking down or is depreciating quickly.
They’re generally looking for a loan that isn’t too new, or too close to being paid off as well. And, refinancers may also require that you haven’t missed a payment on your original car loan. A borrower whose current on their loan gives a lender confidence you’ll manage the new loan well.
Alternatives to Refinancing Your Subprime Auto Loan
If you’re not able to refinance your vehicle, you typically still have the option to trade it in for something more affordable. Even if you’re still paying on a loan, all you have to do is pay off the loan to release the lien on the car.
Even if it’s years from the end of your loan term, you may have a good chance at trading in your vehicle, especially now. Due to fluctuations in the auto market, used cars are in high demand currently, which means that dealerships may be willing to pay a higher price to get your used vehicle on their lot – even if you’re a bad credit borrower looking to trade-in.
If you still owe on an auto loan this gives you a better chance at selling your car for the amount you owe to the lender. It may even give you enough cash left over to put toward your next, more affordable vehicle!
Ready to Get Started?
If you think refinancing your subprime auto loan is the way to go, you can check out our resources, here. But, if you think that finding an affordable, used car with a lower monthly payment is the right choice for you, we want to get you started toward your goal today!
At Auto Credit Express, we’ve got a coast-to-coast network of special finance dealerships ready to work with borrowers who are struggling with credit challenges. To get connected to a dealer in your local area that’s signed up with subprime lenders, simply fill out our auto loan request form. It’s fast, free, and never carries any obligation.
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Many of us got our first credit cards when we were either in college or in our early 20s. We likely did not have a full-time job with a steady salary, and if we did, it’s also likely we weren’t rolling in dough.
See: 13 Credit Cards That Every 30-Something Should Consider
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Given these circumstances, the first credit cards offered to us were probably of a particular kind: low credit limits, no prior credit history required, high annual percentage rate and overall easy to get. While these cards served us well as a way to build up our credit — and probably learn some lessons about money the hard way — it’s time to let go for a couple of reasons.
The Benefits of Upgrading Your Card
When you upgrade your card, it’s likely you will also upgrade the benefits. Some companies, like Discover, Credit One and Capital One, are popular choices as a first credit card. However, these companies have better options as you, and your finances, mature.
The Wall Street Journal suggests asking for an upgrade. “Customers need to phrase it as a ‘product change’ when they call the card company. A product change involves getting a new card with the same card provider and it typically allows a cardholder to keep everything else the same, including the account number and available credit.”
See: 10 Credit Cards That Have Gotten Better During the Pandemic
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This could be a good idea for those who are not ready to jump ship from their first credit company just yet. It also removes the hassle of having to find a different provider, and probably the largest benefit of all — no hard credit check needed.
A “hard” credit check is when your credit is thoroughly examined, and it results in an inquiry showing up on your credit report. These are always necessary for opening a new line of credit, like a credit card or a mortgage, but too many inquiries can count against you and negatively affect your credit. A “soft” credit check, on the other hand, will not affect your credit score and is usually done for verification purposes, such as when you apply for new employment. Soft checks also happen with preapprovals.
See: Soft vs. Hard Credit Check — What’s the Difference?
Find: 30 Things You Do That Can Mess Up Your Credit Score
If you ask for a product change on a credit card, you won’t need to have that hard inquiry because the company already has a solid picture of your credit and has done an inquiry before. But it’s important to confirm that your credit history will be rolled over to the new card.
Switching credit institutions all together can be beneficial, depending on what you’re trying to achieve. While the rules of credit apply whether you have, for example, a Credit One or Chase credit card, it’s not a secret that certain credit cards have certain reputations — or that credit bureaus take notice.
For example, the Credit One Bank Visa card is “one of the most popular credit cards for people with bad credit, largely because it’s one of the few unsecured cards that applicants with poor credit scores can get approved for,” according to WalletHub.
See: Biden Wants to Shut Down Credit Bureaus – What Would That Mean for You?
Find: 10 Credit Score Myths You Need to Stop Believing
In contrast, American Express credit cards are best for people with credit scores over 700 and require at least “good” credit for approval, WalletHub adds. A good credit score is one that’s between 670 and 739, according to Fair Isaac.
So while both cards function the same way, the profile of those who own these cards might be different — or at least be perceived as such.
Theoretically, the same person could own both cards, but your money works for you more with an American Express vs. a Credit One. If you have a Credit One card but qualify for American Express, it might make sense to leave your old credit card behind. In addition to the immediate financial benefits, upgrading for a credit card company that has a reputation for being exclusive to those with good credit could help when you apply for a mortgage or apply for credit cards at specific stores.
See: This Is How Many Credit Cards You Should Have
Find: Credit Cards With the Best Incentives to Open in 2021
The first question you should ask yourself is, “What is my card doing best for me?” If the answer is helping you build your credit, getting you out of bad credit or allowing you to have credit when you otherwise would not be able to, then sticking with the same card, or at least the same credit card company, makes sense.
This allows you avoid a new credit inquiry on your credit report while still building and increasing your credit. Asking for a credit limit increase on your credit card if you’ve been with the same company for a while, you’ve been routinely paying off your card and you’re in good standing, is a good idea.
See: Expert Tips to Fix Your Credit on a Limited Income
Find: What Is a Credit Limit?
If you are shopping around for a new card that gives you rewards or benefits based on your purchases, starting small is paramount. It wouldn’t be prudent to go straight for a card that has a yearly fee, for example.
Start small, and start smart with credit limits, too. Going from a limit of $2,000 straight to a limit of $15,000 while your salary remains relatively unchanged is not always a good thing. Having a higher credit limit doesn’t necessarily mean that you are now richer or more responsible — it only means that you now have a greater risk of putting yourself into serious debt. Slowly increasing your credit limit makes your debt more manageable — and makes you look more responsible to credit bureaus.
Breaking up is hard to do, but if your finances have matured, it might be time to get a card that helps you reach your goals with cash-back rewards and points you can use for travel, groceries and other other items. Shopping around for a lower interest rate and a slightly increased credit limit can also help you move forward.
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This article originally appeared on GOBankingRates.com: It’s Time to Break Up With Your First Credit Card
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