Many of my clients have dealt with a previous repossession and some of them are not sure how to bounce back from that. There are a few steps to follow and of course, you must have patience as many banks are not willing to give a second chance. I will quickly break down step by step what to do and what to expect along your journey as it will take some time to progress from it. Lets go over How To Bounce Back From A Repossession!
1. How The Banks See Repossessions
First, in order to bounce back from a repossession, you must know how the banks see repossessions. Of course, its a negative mark on a credit report, but that is not all. You see, with a repo, the original creditor takes the car, charges extra fees for that, and then they sell the car to the auction. After the car is auctioned, the remaining balance is then expected to be paid back from the person that was on the loan. In most cases, the bank will take the account to a charge off status and/or send the open balance to a collection company. If the balance is later paid in full by the consumer, it looks good on paper as it shows the consumer cares about the outstanding debt. The same would be if the consumer has the car repossessed and then later redeems it by bringing the auto loan to a current status. Either way, the bank will see a repo as a bad sign of credit and money management and will more than likely ask for more upfront from consumer in the form of a down payment so less risk is taken on.
2. Previous Repo Banks
There are a few banks that are available to consumers with previous repo’s. Not all dealerships or car lots have access to them or do business with them depending on various reasons.. With these type of banks, you must expect a few things:
- 18% Interest Rate Or Higher (Assuming You Do Not Have A Co-Signer)
- Newer, Low Mile Cars With A Bigger Down Payment Needed
- Older, High Mile Cars With A Smaller Down Payment Needed
- Proof of income, Proof Of Residence, Proof Of Financial Account, State ID, & References
- Minimum Income Of $800 – $1500 before taxes (gross income)
After about 6-12 payments made on-time with the recent auto loan, you may want to consider refinancing. Refinancing is when you qualify for a lower interest rate and flexible term options to lower the payment and/or save on interest. This is very common with home buying but not talked about as much with auto loans. It makes complete sense to do it as your score has more than likely risen over time. Great refinance banks are Capital One, Wells Fargo, State Farm, Car Finance, and etc.
It only makes sense to trade the car in after about 60% of the auto loan term has been reached. This is because the interest payments are getting lower and more of the monthly payments are going towards the principle of the auto loan. In short, you wont have much negative equity (upside down), so you can trade the car in for another car with a smaller down payment or no down payment at all. The longer you wait to trade in, the better as the negative equity will surely be low, unless the vehicle is very old and the miles are extremely high. Various factors can change any given situation.
4. Don’t Make The Same Mistake Again
Paying an auto loan with a high interest rate is no fun at all as it will seem like you will have the car forever and the payments are crazy high. This will be the case if you are continuously late on the auto loan payments or have multiple repo’s over time. In short, it costs too much to keep going back to these high interest rate banks that want large down payments for a decent car. Remember, on-time payments will keep you with low or no interest rates forever.
The Bottom Line
Now you how to bounce back from a repossession! As you can see, its not as hard as many people may make it seem. There are many people who have 700 credit scores or higher with previous repo’s. Hopefully, I have give you or someone you know hope with their situation. Be sure to share this information with someone you know who would benefit from it.