Getting your car repossessed is a stressful situation, both emotionally and financially. Once it’s listed on your credit report, a repossession will stay there for seven years.
Find out how car repossession works and how you can repair your credit afterwards.
What Is Car Repossession?
Most auto loans use the vehicle as collateral. If you default on your loan payments, the lender can collect the car to cover your outstanding balance owed.
Depending on where you live, your lender may be required to give you notice in writing in advance, or they could repossess your car with no notice. If you’re worried about the status of your car payments, check the laws in your state so you know what your rights are.
It’s best to avoid this scenario if possible because the damage can be lasting. How long a repossession stays on your credit report is typically the same for everyone: seven years.
Types of Repossession
There are two types of car repossession: involuntary and voluntary. Let’s take a closer look at both.
Involuntary Repossession
With an involuntary repossession, the lender hires a repossession agent to seize your vehicle. This can happen at any time and any place, including on your own property. Your state may have rules against “breaching the peace,” however, which limits the agent’s ability to use force or threats to take the car.
Voluntary Repossession
With a voluntary repossession, you willingly give the lender ownership of your vehicle. You’re still responsible for paying off any loan balance or deficiency, but this option gives you more control over how and when you give up your car. Plus, you may not accrue as many fees since there is no repossession agent involved.
How Does Repossession Affect Your Credit?
Your credit report lists out different types of entries related to your loan accounts, all of which < ahref="https://www.sofi.com/learn/content/what-affects-your-credit-score/">affect your credit score. For one loan, including auto loans, your credit report will list any and all of the following associated with the account:
• Late payments (usually 30 days past due)
• Loan default
• Collections in case there’s a remaining balance after repossession
How long does a car repossession stay on your credit report? As we mentioned, it will be there for seven years. But over time, the impact on your credit score can lessen, even if the information is still listed. Sign up for a credit score monitoring service to track any changes over time.
How a Car Repossession Works
After a car is repossessed, the lender can choose to keep it or sell it. You may or may not be notified of the sale, depending on the laws in your state. Before that happens, though, the lender should return any personal property within the car.
Once the lender sells your car, the money is put toward your outstanding loan balance and any additional fees incurred by your account. There may be a deficiency, which means the sales price doesn’t cover everything you owe. In that case, your lender could sue you in order to collect the deficiency.
How to Get a Repossessed Car Back
You may have a chance of buying back your car, depending on your state laws. One option is to pay back the balance in full, along with any administrative fees the lender incurred. Some states require lenders to offer this option, while others do not.
Another option is to attend the repossession or auction where your car is being sold and bid on it yourself. In certain states, the lender is required to notify you of the date and location of the sale.
How to Rebuild Credit After a Repossession
Learning how to build credit effectively is a smart move to make after your car has been repossessed. It will set you up for better financing opportunities in the future, both in terms of getting approved and qualifying for a better interest rate.
However, it can take time to build credit. The sooner you start, the faster you’ll see progress in your score updates.
Here’s how to fix your credit after a car repossession in three steps:
• Pay your bills on time: Use a spending app to create a budget and pay your bills on time each month to avoid more negative entries on your credit report.
• Lower your credit card utilization: Work on a payoff plan for any high balances you have on credit cards. A lower credit card utilization can quickly improve your score.
• Open a secured loan or credit card: Secured financing uses a savings deposit as collateral while you make on-time payments. The lender reports those payments to the credit bureaus to help rebuild your credit.
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How to Avoid Car Repossession
The best way to avoid a car repossession is to get current on your auto loan payments. Check your loan agreement to make sure you understand what it takes to bring your account into good standing. You may have additional fees and charges to pay as well, but taking care of your outstanding payments could prevent you from going into default.
If you’re already in default, you may be able to reinstate the loan. This involves making one lump sum to cover all of your late payments and fees. This can be difficult, especially if you got behind on payments in the first place due to financial hardship. While there’s no silver bullet, using a money tracker app could help you find areas to save in so you can put more money toward your auto loan.
Finally, you could sell your vehicle, especially if you think you could bring in more with a private buyer than the lender would at an auction. But you may need the lender’s consent if your loan is already in default.
Why Lenders Can Repossess Your Car
A lender can repossess your car because the vehicle itself is used as collateral for an auto loan. How and when your car can be repossessed depends on the laws in your state.
Can Repossessions Be Removed From a Credit Report?
Negative entries like late payments, loan defaults, and repossessions can only be removed from your credit report if the information is inaccurate. Check your credit score for free and get copies of your credit reports to see if there are any errors listed, like incorrect balance amounts.
If you see anything wrong, file a dispute with the credit bureau. The dispute process usually takes no more than 30 days and doesn’t impact your credit score.
The Takeaway
A car repossession may stay on your credit report for seven years, but you can start to move forward with rebuilding your financial health right away. Paying your bills on time, lowering the amount of available credit you use, and opening a secured loan or credit card are all strategies to help you repair your credit.
Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.
FAQ
Can repossession be removed from a credit report?
A repossession can only be removed from your credit report if there is inaccurate information listed about your account. You must file a dispute with the credit bureau to get that information either updated or removed.
What happens to a repo after 7 years?
Any related negative entries on your credit report should drop off after seven years.
How many points does a repo drop your credit score?
Not only do you need to know how long a vehicle repossession stays on your credit report, you also need to know what kind of effect it has on your credit score. Depending on your score before the repossession, it could drop by at least 100 points.
Photo Credit: iStock/Drazen_
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