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How does a car repossession affect your credit? – Car Loans



If you are late in your car payments and looking through the curtain in case the “repo” man (vehicle replacement) arrives, it should be very clear to you that a seizure or replacement of your vehicle could severely ruin your credit Fortunately, you can stop the process and reverse this situation.

You can stop a repo (replenishment of your vehicle), but many consumers who are afraid, embarrassed or simply do not know what to do, ignore calls and letters from the bank, which is actually the opposite of what you should do?

 

A REPLACEMENT WILL DAMAGE YOUR CREDIT

A REPLACEMENT WILL DAMAGE YOUR CREDIT

If you want to save your credit, you must avoid a seizure of your car at all costs, says Payne Sanford, a credit expert and owner of Good Start Financial, a Texas credit consulting company. This is how a replacement of your vehicle can damage your credit score :

 

Delays in payments

Delays in payments

A lender can take possession of your vehicle only after you have failed to pay the loan – the details will be specified in the contract you signed when you got the loan for your car, truck or truck. The moment your car is re-owned is because at least 60, 90 or 120 days of late payments have been reported to the credit bureaus. 

 

Repo

Repo

Upon taking possession of your car (or repossession) it will be shown on your credit report in “current form of payment” of the loan, according to the TransUnion Credit User Guide. The Code 01 means paid as agreed, while 08 indicates a repossession, and 8A means voluntary repossession. A voluntary repo is when the vehicle returns to the lender and is just as bad for your credit as when the person in the repo takes your car by force. Both leave a serious stain on their credit.

 

Collection

Collection

After taking possession of your vehicle, it will probably be sold cheaply at auction. In many cases, especially if you have been making car payments for less than two years, the sale price will be less than the total you owe on the loan. That is called a “deficiency balance.” Therefore, if your loan balance is $ 17,000 and the vehicle sells for $ 12,000, you will owe $ 5,000. The lender could add up to $ 1,500 extra in towing and storage costs. If the lender sends the account to a collection agency, it can appear on your credit as a collection or collection that also has a negative effect on your credit, especially if it is recent.

 

Trial

Trial

If the creditor demands it to try to collect the remaining balance and gets a judgment against it, this will appear in the public records section of your credit report which is also a black spot on your report.

According to financial specialists, a repossession of your vehicle could cause an estimated 100 point drop in your credit rating. And late payments, collections and public records in general, remain in your credit for about seven years according to yFICO. A repossession not only damages your credit score, but also sends a red flag to car lenders that could easily prevent you from financing another car.

 

HOW DOES A REPOSSESSION OCCUR?

HOW DOES A REPOSSESSION OCCUR?

Once you are more than 10 days late with a payment – a grace period typical of car lenders – the phone will start ringing at least once a week with a reminder of the lender so you can make your payment.

Most large banks will not take possession of a car until you take 90 days or later in a payment. The time frame varies according to the lender, however, some may try to recover the car after 60 days.

If you think it means a big man will show up to knock on your door in the early morning to try to remove your vehicle in any way, you are watching too much TV … A typical repo happens silently and quickly.

Normally, equipped with an elevator, a repo agent goes to the borrower’s house or his job. Once they identify the vehicle and confirm that it is correct by checking the VIN, they load it with an elevator. This process can be done in less than 1 minute.

After insuring the vehicle, the consumer is usually given the opportunity to take out their handbags, CDs or other personal items from the car. In fact, the creditor cannot keep any of his assets left in the car and, if they do, you should speak with a lawyer, according to the FTC (Federal Trade Commission).

 

HOW TO AVOID REPOSSESSION OF YOUR VEHICLE?

car credit

No matter how friendly or intimidating the repo agent is, nobody wants their car to be returned to the bank. If you are on your way to a car repossession, you may still be able to make a complete turn and save your credit and your car. Here are three options:

Request an extension – Banks do not want to recover your car. They know they won’t get much money for him. Many lenders grant you a deferral if you are not already paying late on your loan. Most banks allow the deferment of one to two payments a year. Suppose you have 30 months left to pay your loan. The bank can let you skip the next two payments and put that amount due to the total loan amount. In some cases, the bank may require you to make half of your next payment as a sign of good faith, and then let it skip the next full month. The FTC recommends that if the bank agrees to make any changes to the loan.

Refinance your car loan – If you still have good credit, refinancing your loan may be a good option. You may be able to reduce your monthly payments, either by reducing your interest rate or by extending the term of your loan. And, according to Wells Fargo, you may be able to take a month off from payments between loans.

Sell ​​the car on your own – You could simply try to sell your car on your own. However, if you owe more than you can get for your car, you will have to find a way to complete the difference such as a loan from family or friends to be able to pay the entire balance of the loan. You will have to pay the loan in full to get the bank to release your withholding right in the car so that the buyer can get the title … At the end of the day, it is much better to have your vehicle repossessed.