In most cases, a car repossession stays in your credit report and will eventually fall off the list after seven years.
A vehicle repossession doesn’t occur immediately. It’s most likely one of the last steps lenders do to take back what you have loaned from them.
You may have stopped paying after you bumped into a financial crisis. On the other hand, you may have realized your car isn’t as important to you, and having it taken from you doesn’t bother you as much.
However, during your non-payment period, you would have incurred multiple charges that would significantly hurt your credit score for up to seven years.
Charges Incurred Before and After a Repossession
Non-payment charges
A 30-day notice would reflect on your credit report after a month of non-payment. Afterward, a 60-day notice would stack on your first notice for another month of non-payment.
Loan Default
A loan default means you’ve failed to commit to the contract agreement you’ve signed with the lender.
Repossession charges
You may think repossession means your lender will be taking away the car. But it also has additional charges that can appear on your credit report for seven years.
Moreover, you may need to pay additional fees that will reflect on your statement. These charges may include the towing expenses and costs incurred while the car is not yet sold.
Collection charges
After the repossession, your lender would most likely resell your car to diminish their losses. However, the selling price would most likely be lesser than the price that you owe. It means they would have to charge you the difference to make break-even.
If you deny paying this difference, the lender would have no choice but to send your account to the collections. If you continue to work against the debt collector, you would have to face court for judgment.
Now, no one wants to reach this many charges from a simple purchase.
Sometimes, an unexpected situation has led us to this state of helplessness in settling our monthly statements. You may have lost your job, got hospitalized, or become a victim of a natural disaster.
To help you get back up, here are some ways to prevent or remove repossession from your credit report.
How to Remove a Repossession From Your Credit Report
Contact your creditor.
Probably the best thing to do after facing a financial crisis is to contact your creditor about your current situation.
Being honest and telling them you wouldn’t be able to pay your monthly dues on time could benefit you. If your reason is valid and your creditors are flexible enough, they can provide you with a readjusted repayment plan according to your financial situation.
Make sure to ask your creditor for an updated contract which you can sign. It makes the original contract void and would not be used against you should the creditor change their decision.
File a voluntary repossession.
If even a readjusted repayment plan would be difficult for you, it’s best to file for a voluntary repossession.
A voluntary repossession means you’re returning the car even before it leads to a loan default. In doing so, the loan holder wouldn’t be able to charge you on some repossession charges (e.g., towing fee).
Reach out to an attorney.
There might come a time where you purchased a car that doesn’t seem to keep up to what your car dealer has promised. It can be stressful, especially when you agree to pay a considerable amount for it.
If you think you are a victim of car fraud, you can contact an attorney for help. If you have all the necessary evidence, such as the contract agreement along with the car, an attorney would be most likely to solve your case.
In addition, having an attorney to guide you would give you more boost into winning any court issue than by just filing a complaint to the financing company or car dealership.
Check the rules your state has when it comes to vehicle repossession.
Once in a while, car creditors could make a mistake when it comes to repossessing your car. Some states require notifying the car owners when their vehicle is about to be repossessed, while others do not. States also differ on what happens to the repossessed car afterward.
Make sure to check on your local government for your protection rights. If you have evidence that your lender has broken a rule, you can file a complaint that can be used against them.
Find ways to finance your loan.
If your creditor’s suggestions don’t seem to work on your end, you can finance your loan using your means.
If you think having a car isn’t too important for you, you can resell your vehicle and use the money to pay your loan. Otherwise, you can trade your vehicle for something cheaper. In this case, paying the monthly statements would be much doable while still having a mode of transportation for your everyday trips.
File a dispute
As stated in the quarterly report of the American Bankers Association, there are over 350 million open credit cards in the US alone as of the end of the first quarter of 2021.
With millions of these accounts open, you would expect billions of transactions that would occur per year. With these many transactions happening in real-time, there would come a time when you’d find yourself getting charged for something you’ve never done.
If you see a car repossession record on your credit report, even if you pay your dues on time, immediately collect evidence to prove your end and file a dispute letter.
If proven you are correct, financial institutions can remove the record on your report in about 30 days.
Pay your credit on time.
You may think seven years could be a long time, but at some point, these repossession charges would be removed from your record.
While this is the case, you could add positive items to your report by paying off loans on time. It may pull your credit score significantly as payment history encompasses about 30% of your credit score.
You can add small loans to your credit as you finish paying off your ongoing ones. Doing this could be beneficial to you because lenders usually check on more present payments than older ones.
Build an emergency fund.
This may be too late when your car repossession has already reached your credit report. However, to prevent the same situation from occurring, having an emergency fund would be very beneficial.
It wouldn’t just help you out in case of any financial problems. It would also make you feel more secure when making life-changing decisions such as changing careers or moving to a different state.
Summary
Having your car repossessed doesn’t just mean getting separated from your dream car. It also means your credit report would get marked with negative items making it challenging to get approved for loans in the future.
You can follow prevention measures to lessen the amount of damage on your credit when loaning a car. But if preventing damages becomes too late, it’s always best to face them straightforwardly.
The next time we make a significant investment, we should plan and have emergency funds to keep us on track.
References
Car Repossession. (n.d.). NCDOJ. https://ncdoj.gov/protecting-consumers/automobiles/car-repossession/
Hebert, A. (2020, April 15). Behind on car payments because of the Coronavirus? Federal Trade Commission Consumer Information. https://www.consumer.ftc.gov/blog/2020/04/behind-car-payments-because-coronavirus
Vehicle Repossession. (n.d.-b). Federal Trade Commission Consumer Information. https://www.consumer.ftc.gov/articles/vehicle-repossession
Credit Card Market Monitor. (2021, July). American Bankers Association. https://www.aba.com/-/media/documents/reports-and-surveys/2021-q1-credit-card-market-monitor.pdf
