What if I’ve had a repossession?

Many people in Canada have had a previous repossession. And, yes, a repossession makes securing an auto loan more difficult. But it is possible, especially when you work with a lender that considers the unique factors affecting your financial situation.

Has it been years since your repossession? Did you face repossession because you lost your job or had unforeseen medical expenses but are now back to work and back on track?

You can obtain an auto loan after repossession, but it’s essential to find a lender who is willing to ask these questions and who cares about your answers.

What is a repossession?

A repossession occurs after a buyer fails to repay a loan. A repossession agency retrieves the vehicle (boat, RV, etc.), which is then sold at auction.

While a repossession technically may occur as soon as a single payment is missed, most lenders offer a grace period. After all, repossession entails costs to the seller, who must pay a repossession agency to recover the vehicle, then store the vehicle until it can be sold at auction—at a price that may or may not be profitable for the seller.

Sometimes, following a repossession, a buyer may have the opportunity to catch up on payments and reclaim the vehicle. If this is still a possibility for you, it may be your best bet to secure access to a vehicle in the near term. However, if the cost of payments, insurance, gas, and potential repairs still exceeds your budget, it may signal that you have the wrong car for this point in your life.

If your vehicle has already been sold at auction, make sure that there is no deficiency balance—that you don’t still owe money on the car after its sale at auction. You may still owe money because the vehicle sold for less than the balance of your loan, or because the added costs of repossession, which can be passed on to the buyer, have not been met by the auction sale. If you still owe money, clearing this balance is the first step toward securing another auto loan.

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How to get a car loan after repossession

The most important thing to remember about your ability to obtain an auto loan is that your credit worthiness does not depend on any single factor—it is a combination of many factors. And while a repossession has a significant negative impact, you can offset that impact, in part or in whole, through other elements of your credit.

Here’s how to give yourself the best chance to obtain a car loan after a repossession:

Give it time. A repossession stays on a credit report for seven years. Still, it doesn’t have the same impact for all seven years. Credit worthiness is always about lenders assessing the risk of lending money to you right now—not two years ago or two years in the future. If you’ve just endured a repossession, consider waiting, if possible, until the repossession is a bit farther back in your rearview mirror.

Find a cosigner. If you can’t wait, the quickest way to improve your credit worthiness is with a cosigner. A cosigner reduces risk to the lender by promising to step in and repay the loan if you’re unable to do so. Since your cosigner’s creditworthiness supplements your own, make sure your cosigner has a solid credit history.

Bring a bigger down payment. As we noted above, your credit worthiness is a combination of factors. The more money a lender provides, the greater amount of risk they take on. That’s why a bigger down payment can reduce the risk to a lender—it decreases the amount of money financed. Remember, it’s not just about getting approval. It’s about getting approval at an interest rate you can afford. You want to present the best possible credit scenario to minimize your financing costs and make car ownership affordable.

Open an account for a secured credit card. If your current credit situation doesn’t allow you access to regular credit cards, a secure credit card can help rebuild your overall credit, putting you in a better position to secure an auto loan. Secure credit cards require a security deposit equal to the credit limit. The card is used like a regular credit card, with the balance paid off each month. The security deposit protects the creditor from risk, while the cycle of monthly payments helps reestablish your credit worthiness.

Get on schedule with your other debts. Because a repossession is one of several pieces in the credit puzzle, getting your remaining debts and payments in order helps lessen the impact of the repossession. If your credit profile includes a repossession as well as a number of behind-schedule payments and high debt burden, it makes it more difficult to earn approval.

Be honest and open about your credit past. When it comes time to apply for a new loan, bring a written explanation from your previous lender that explains why your vehicle was repossessed. This provides concrete evidence to your prospective lender about what happened and may corroborate your own story about a sudden, unexpected financial event. You won’t help the approval process by evading important questions about your credit history. Remember: Lenders connected with automotive dealerships have an added incentive to find a credit solution because it allows them to move a car off their lot.

No matter your situation, there’s no reason not to take the first step today. Fill out our online credit application to see where you stand, and to find out how we can work together toward a credit solution.

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