Obviously, nobody wants to get their car repossessed. But if you fail to make payments on a vehicle, the lender is well within their rights to take the car back – and if you can’t furnish the required fees and payments required to get it back, you may lose possession of your vehicle permanently.
Many companies are quite forgiving when it comes to car repossession, only dispatching repo crews after 60-90 days of nonpayment. And in Canada, car repossession is never a surprise – lenders are obligated to supply a written notice of repossession to a vehicle owner, at a minimum of 48 hours from repossession.
But still, auto repossession happens. So whether you’ve had your car repossessed in the past, or are just curious about the effects repossession can have on your personal finances, we’ve put together this post outlining the top 4 ways that a repossession affects your credit score.
1. Late Payments On Your Loan
Unless you’re dealing with a truly cut-throat lender, they’re not going to try to repossess your car the day after your loan payment was due. Repossession is expensive, and banks tend to give people quite a bit of leniency when it comes to late auto loan payments.
Because of this, most repossessions only happen after 60, 90, or 120 days of late payments – depending on the specifics of the lender, repossession team, and the agreed-upon terms of the loan.
This means that your credit score is going to be negatively affected before the repossession even occurs. Your credit score will be affected each time you’re late on your auto payment – so a 120-day late payment is going to have a serious impact on your credit score.
2. The Repossession Will Be Recorded In Your Credit Report
If your car is repossessed, this will be logged and recorded in your credit report, underneath the relevant auto loan. This is true whether your vehicle is repossessed by a repo company, or if you hand it in voluntarily – both have equal negative impacts on your credit score.
A repossession is recorded for 7 years, and can easily damage your FICO score by more than 100 points, making it one of the single most impactful events that can damage your credit score.
3. Collections Agencies May Seek Further Payments
If your vehicle is repossessed and you can’t get it back, it will be sold cheaply at an auction. While that money will go towards loan repayment, it may not be enough – especially if you haven’t had the car for very long.
This is known as a “deficiency balance”. For example, If your car was worth $10,000, you had paid $2,000 toward the loan, and it was sold for $6,000, you still owe $2,000. The debt from your auto loan is not automatically canceled, and lenders expect this money to be paid immediately.
If you can’t pay that cost immediately, lenders may turn to a collection agency. If this happens, it will be noted on your credit report – further damaging your credit.
Most lenders are not willing to send a simple repossession case to court, so collections agencies are the primary way that banks and other lenders try to extract payments from individuals. However, this is not always the case, as we see below.
4. Judgments Against You May Be Recorded
If you refuse to pay a collections agency, or you’re unable to do so, you could be taken to court by a lender. Because going to court is relatively expensive, most banks prefer to work out an alternative solution – but in rare cases, banks will sue individuals in an attempt to obtain the remaining deficiency balance of a loan.
If a judgment is made in their favor, this will be noted in the “public records” section of your credit report. This will further damage your credit, and be noted by credit agencies and banks during future credit checks.
Got Bad Credit? Have You Had A Car Repossessed? Come To Ride Time Today!
At Ride Time, we believe in second chances. Whether you’ve got bad credit from a car repossession, or simply have mismanaged your finances in the past, we don’t judge. That’s why we specialize in helping customers with bad credit secure fantastic deals on great used cars.
If you can give us proof of 3 months of employment, show evidence of income greater than $1,500/month before deductions, and give us a valid Canadian driver’s licence, we’ll work with our network of lenders to get you a reasonable rate on one of our vehicles – even if you’ve had a car repossessed in the past.
So come into our showroom in Winnipeg today, or browse our website to see our stock of inexpensive used cars, trucks, and SUVs. We offer vehicle delivery all over Canada, so we can help you get a car – no matter where you are!