Bad Credit Auto Loans: How to Get an Auto Loan after Repossession

If you don't pay your car payment for three consecutive months, your auto loan lender has the right to reclaim or repossess your automobile. There are many reasons why a borrower falls behind on their payments. In many instances, loss of employment makes it impossible for a person to continue making payments. Then again, some people buy cars they can't afford and are unable to meet the monthly obligation. Whatever the reason, a car repossession will damage your credit rating and make it harder for you to get approved for future credit. Still, there are ways to obtain a new car loan and improve your credit score. 

1. Pay the Balance: Once the auto loan lender repossess a car, the automobile is sent to an auction house, and the proceeds payoff the vehicle loan. If the automobile sells for less than the loan balance, the original borrower must pay the difference. In many cases, borrowers don't have extra cash to pay the difference, and lenders report the repossession and the delinquent balance to the credit bureaus. If you want to finance a new car shortly following a repossession, it helps to develop a plan that will enable you to pay the balance and salvage your credit.

2. Wait at Least One - Two Years: Financing a car immediately following a repossession is a bad idea for several years. For starters, the lender will charge an enormous interest rate, which will increase monthly payments. If you need transportation and do not have enough available funds to pay cash for a car, financing is the only alternative. However, if possible, wait until your credit improves. There are several ways to quickly improve your credit. You could open new lines of credit and payoff the balance each month. This tactic can increase a low credit score within a short amount of time. Furthermore, paying bills on time and reducing debts is an effective way to improve credit and get approved for a car loan. Once your credit score is high again, some auto loan lenders will excuse the repossession and approve you for a reasonable interest rate.

3. "Buy Here, Pay Here" Car Dealers: After a repossession, it is difficult to obtain a loan from a prime lender. Even if these lenders approve your loan request, you'll pay hefty fees. If looking for a sub prime auto loan, consider a small privately owned car dealerships. These car dealers may provide easy financing, and offer low, comparative rates to persons with bad credit, recent bankruptcy, and repossession.