5 Tips to Get a New Car Loan after a Reposession

A car loan repossession is one of the most negative reports that can appear on your credit score. The repossession is recorded and a default is also recorded. In order to get to the point of default, several late notices must also have been recorded as well. The result is a very low credit score and a hard time getting a new loan. Try these tips to help secure vehicle financing in the future:

#1 Avoid or Volunteer Repossession

The first step to recover from repossession is to completely avoid it. Refinancing your auto loan before it goes into default may be the best option. If you cannot continue to make payments even after this option, consider voluntarily submitting your vehicle. Although this is still technically repossession, default will not occur and your credit score will be partially saved.

#2 File an Explanation of Hardship

You can explain a default to creditors before you even speak with them by filing an explanation with the credit bureaus. This only works if you have a good reason for your default, such as an illness or joblessness. You will also have to show this circumstance is no longer a factor in order to convince lenders you are once again creditworthy.

#3 Take a High Risk Loan

The fastest way to rebuild credit right after repossession is to take a high risk loan and pay the loan off quickly. Some borrowers may consider a high risk personal loan even if they do not specifically need the funds. The funds can simply be saved in an account to be repaid in full. Interest will be charged, but the interest may be worth the advantages of paying off the loan and getting the credit boost. 

#4 Save for a Down Payment

A down payment goes a long way to getting an affordable auto loan. The down payment will reduce the overall limits of the loan you are seeking, immediately making it lower risk and more affordable to you. Providing a large down payment also goes a long way to assure lenders you are financially capable of paying for the automobile. You should try to supply at least 20% down if you have a low credit score. Where possible, aim for a higher down payment by reducing the cost of the cars you are looking for. Opting for a less expensive car can ultimately give you the best options.

#5 Budget Well

The biggest consideration of whether you will recover from a repossession is how you handle the next loan you achieve. Having two repossessions or default on record can permanently damage your ability to achieve a good loan in the future for any purpose. You should budget for high monthly payments that will likely come with your high risk loan. This can mean saving money for several months in order to allocate more funds toward your car payments. You will also find budgeting after you have received the loan will help you continually make payments toward the principal, reducing the size of your loan and getting you back on track for good credit. 

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