Buying a car is a daunting task. Unless you have the cash, you will need a car loan. I am sure most of us will need that car loan. The car loan which you have undertaken needs to be serviced consistently and most important of all, it has to be paid on time until the loan is paid up. If you happen to default your monthly payment for two to three months, your creditor has the right to tow that vehicle from your possession. In this instance where you are granted with an auto loan for the purchase of a vehicle, makes you the hirer. This also makes the Bank or the financial institution who had given you the loan, your creditor. This process of taking back the car for sale in order to get back as much money as possible that you owe is called repossession.
What is repossession?
Typically, if you had defaulted the payment for two to three months, depending on your automobile loan contract, your creditor will immediately tried to contact you via post or phone. If payment is still not received, the creditor will go on to repossess your vehicle by engaging repossessing company. Once towed, the hirer will be given a chance to pay for your defaulted payment on top of the repossession charge. If still unable to recover the payment from you, your automobile will be sold off. This will not end here. Your automobile which will be sold at a the first available price without much bargaining and the money obtained will be used to pay off your automobile loan. In usual cases, it will never cover the full loaned amount, which means you still have to pay for the balance. Now, the situation at this point will leave you with no car to drive and worst still, a debt to pay. Paying for something which you do not owned is not something you would like and that is the aftermath of a car repossession. Sad to say, it really does not end here as it will affect your credit to a very large extend.
How repossession can affect your credit
All economics statistic are to be monitored and regulated closely in order to truly reflect how well the economics are doing. In most developed countries, there will be a department called the credit bureau who will be in charged on monitoring and regulate debt and statistics. Some jobs even request for your credit report before they consider to employ you. All your credit histories will be generate in this report. Banks usually screen for your record before they consider to give you that loan you apply. Constantly defaulting your loan repayment will result in bank declining your loan application. That will includes even secured loan. Secured loan is a loan that you take in exchange for an asset that is deemed to be substantial based on the amount you loan that is belonging to you to be mortgaged. Once defaulted the banks or your creditors have the absolute legal power to repossessed that asset.
Once your car is repossessed, most banks will declined your secured loan application for considerably large amount. This not only hurt your credit, it also land you with limited choices for applying for a loan. Buying a house requires loaned and you will not be able to get a typical secured home loan with reasonable interest rates.
What are the choices that are left?
1. Finance companies. But they charged a very high interest rate ranging from 8% to 10% that is quite similar but lesser compared to ‘loansharks’. The key difference here is that they are legal.
2. Smaller banks. But the interest is quite close to what finance company offered. But they will only lent you a small amount as compared to finance company. That is provided you are able to find a person who is generous enough to be your guarantor.
3. Online finance firms. Of late, there has been a trend of companies online offering an interesting loan called the bad credit loan. This is extremely suitable for people with bad credit records. Well, there are a few drawbacks in taking such loans. Extremely high interest rate. Extremely high late repayment penalty. It will only land you with larger debts to clear. So beware.
What are the other unintended consequences of having a bad credit?
If you have a bad credit records, you may not be able to work in some professions. Companies like banks and finance institution would prefer your credit records to be ‘clean’ in order to employ you because integrity is at stake and if you are financially embarrassed, they would presume that you are more likely to be succumbed to monetary temptations. That goes without saying for jobs with the government where clean credit record is a basic requirement.
This is to show that how repossession could hurt your credit and credibility record. Avoid having a bad credit record at all cost.