How a Car Repossession can Affect your Credit

Many people finance their cars through dealerships. When this process is done the car stands as collateral for the loan. Collateral for loans are items that can be repossessed if an individual fails to meet the loan agreement. The economy being in such terrible shape is increasing the amount of repossessions. If you are an individual experiencing or facing repossession there are a few things you should know about how your credit will be affected.

The car will be taken by the lender and then sold to account for as much of the debt as possible. The individual will be responsible to pay the difference. If the debt is not paid it will be turned in to the credit reporting bureaus as a loss.If you are thinking this charge off is a good situation for you think again. When attempting to receive credit from other sources a credit report will be pulled. The charge off and repossession will show on the report. This will show lenders you are not responsible with debt and may result in a loan refusal. Repossession is not quite as devastative as a bankruptcy which stays on your credit report for 10 years but it will show for seven.

In addition to the repossession and charge off showing on your credit report your overall credit score will suffer as well. Good credit is needed in order to borrow money from lenders if these actions lower your score to less than favorable you will not be considered as loan worthy. Credit scores are not something that can be fixed over night and in fact take years to improve.

Knowing the long term effect a car repossession could have on a credit report should motivate individuals to attempt to find a means to pay their debt before repossession takes place. If you are having difficulty meeting monthly payments contact your lender to see if a lower payment plan can be worked out. Paying off the loan may take longer but maybe repossession can be avoided. Items such as credit cards can be consolidated to save a bit of cash. These loans have nothing standing as collateral. Be aware that attempting to consolidate a collateral based loan may result in immediate repossession unless the approval of the lender is gotten. If possible taking out a bank note to pay off the car might be an option. Banks often offer lower interest than dealerships and may be able to extend the years of payment to make it more affordable. These are just a few suggestions to help avoid repossession and credit damage.