Can Car Repossession Affect Your Credit Score?

Can Car Repossession Affect Your Credit Score?

Can Car Repossession Affect Your Credit Score?

If you get tardy on your car loan payments, your vehicle can be repossessed or taken over by the lender. And if there isn’t any court order, this would happen.

This will not only leave you without a vehicle, but it will also have a long-term adverse effect on your credit. In the future, this will make it more challenging to apply for another car loan, as well as credit cards or a mortgage. Learn how repossession works, what it means for your credit

reputation, and how to get your credit back on track after your vehicle is repossessed.

What Is Repossession?

Repossession occurs when an auto dealer takes ownership of your car without notifying you or obtaining court approval. State-by-state car repossession regulations differ; your vehicle purchasing policy can explain how and where your auto lender will repossess your vehicle.

When you get behind on your car loan payments, you will face repossession. Your lender will be entitled to begin the repossession process after the first unpaid payment, depending on the contract.

An involuntary stay is triggered as you file for bankruptcy, which prevents creditors from seeking collections against you. Your auto will not be repossessed as a result of this. The landlord, on the other hand, will petition the court to lift the stay so that they can repossess your vehicle.

Few states have legislation requiring lenders to contact you before repossessing your car, including notifying you of missing payments and giving you time to make up the difference.

Two Types of Repossession

There are two forms of repossession: voluntary repossession and involuntary repossession.

When you send your vehicle up to the landlord voluntarily, it is understandable that you can no longer afford to cover the maintenance payments. However, as most people speak about repossession, they’re referring to forced repossession. This is the time that the lender arrives to pick up the vehicle. Active-duty military members have legal protections relating to installment contracts, such as auto loans, under the Servicemembers Civil Relief Act. These safeguards prohibit a lender from repossessing your vehicle without a court order.

The lender may occasionally remove the vehicle from your property without your permission. They must not, however, annoy you or your neighbors in the process. They are prohibited from “breaching the peace” in some states, which includes:

  • Using or threatening physical action
  • Causing annoyance/ disturbing your neighbors
  • Unauthorized removal of a vehicle from a locked garage
  • Continuing repossession despite your refusal to comply

If the lender breaks the peace after the repossession, you have the right to seek damages.

When your auto is repossessed, whether knowingly or involuntarily, your car debt is not forgiven. You will still repay the loan balance if the vehicle is confiscated.

Your auto lender can recapitulate to collect interest on the loan by contacting you, mailing letters, or employing a third-party debt collector.

To try to recover the cost of your loan, your lender can sell or auction your car. However, if the selling price is insufficient to offset the debt, you must also pay the shortfall or the disparity between the sale price and what you owe.

How Repossession Impacts Your Credit

Repossession will harm your credit score and make your financial life more complicated for years. If you make late payments in the months leading up to the repossession, the credit bureaus will report them to the credit bureaus, which will lower your credit score. The repossession will also appear on your credit report under the public records section.

If the lender obtains a default verdict on the remainder of the car loan, it will appear on the credit report as well. If the loan is transferred to a collection agent, the new account will appear on your credit record as a new entry, which will lower your credit score.

And if the repossession were voluntary, the negative things associated with it would stay on the credit sheet for seven years.

Is Repossession Avoidable?

You may be able to prevent repossession if you make up the late payments. Find out how much you’ll have to spend to get your credit current again by speaking with your lender.

Your credit report can also reflect late payment entries. You will stop making your car repossessed if you keep up with your payments.

Try refinancing into a new auto loan for more manageable payments if the loan payments are too big. With a longer repayment term, a lower interest rate, or both, the refinanced loan can lower your monthly payment.

An upside-down debt is what happens when you refinance your home. This is where the worth of your vehicle is smaller than the amount you actually owe on it. Because of this chance, you should carefully consider your refinancing choices.

Since refinancing continually necessitates good credit, you can aim to refinance your loan before you get behind on any payments. Missed payments can exclude you from refinancing; even if you do apply, the loan conditions may not permit you to lower your recurring payment.

Repair Your Credit After Repossession

A repossession will have a massive effect on your credit, but it will not last indefinitely. As time progresses and you make regular payments on your other credit commitments, the effect on your credit score will diminish. You will improve your credit score by doing the following:

  • Taking care of the unpaid car loan interest: Here, if you have any outstanding loan installments, you need to clear them off (even if your car is repossessed). It will ensure that the lender won’t be able to report you defrauding your installments for the future; instead, he will have to report outstanding credit installments paid. 
  • Other interest payments, such as student loans, must be met: If you have more than one loan-supported endeavor, ensure that you pay the installments for each one. Not paying the installment of all the loans will impact your credit much more adversely. So, pay loan installments every month, quarter, or year to ensure as little credit impact as possible.
  • Keeping credit card balances economical and paying the interest off every month: If you have a tight little pocket, refrain from taking loans from various sources as it will most definitely impact your credit score. Keep taking loans at bay and pay the installments timely and carefully.
  • Continue to pay the deposit, utilities, and medical expenses on schedule: If you don’t pay what you owe timely, your credit history will portray unavoidable grimaces. On the other hand, if you pay every bill on time and the defaulting on loan happened once the lender will see it positively (much as a mistake) 

The loss caused by the repossession will be mitigated if you make timely contributions on your other accounts. The account of repossession/ defaulting confiscation will be removed from your credit record after seven years. If you want timely rectification on your credit history, visit Atlanta Credit Experts as early as possible. The experts there will ensure that they provide you the best out-of-the-box solutions to all your problems and rectify every error present in your credit history. The company will also provide you consultation if financial is not your best stream. So don’t wait up quickly; navigate our website today.