- Life doesn’t end with a car repossession
- Lenders now more receptive to borrowers with poorer credit
- Resign yourself to buying less car than you may want
The bad news is, after you’ve had a vehicle repossessed, your credit will prevent your from getting the best financing deal at the lowest rate. The good news, though, is that lenders are loosening up the purse strings and willing to take more chances on borrowers with less than perfect credit. Your options are improving.
Subprime is the category of financing for consumers with a low credit score or a spotty credit history. This includes those with a recent repossession.
According to Melinda Zabritski, the director of automotive credit at Experian, one of the nation’s three credit bureaus, the number of car loans to subprime borrowers is increasing — up nearly nine percent year over year in the third quarter of 2011.
Experian considers a credit score of 679 or lower as subprime, but Zabritski pointed out the dividing line between prime and subprime often differs from lender to lender.
Another bit of bad news is, when it comes to repairing credit, there is no magic bullet.
Repairing credit takes time. Americans Well-informed on Automobile Retailing Economics (AWARE) is an organization supported by a number of auto loan lenders and related agencies educating consumers about automotive financing. Speaking for AWARE, Eric Hoffman said about rebuilding credit after a repossession, “There’s no quick fix. It takes a while. You are going to need a year or so.”
With that in mind, here then are 5 tips for getting financed after a repossession:
Determine Where Your Credit Stands
You’ve had a vehicle repossessed and you know your credit isn’t good, but how bad is it? Maybe not as bad as you think, but you won’t know until you obtain both your credit score and a copy of your credit report — the first step when seeking a car loan regardless of your credit history.
Obtaining your credit score and report is easy. Experian is a good place to begin, but the other credit bureaus — Equifax and TransUnion — also provide the information. Because the information from each bureau may vary, getting your credit report and score from all three makes sense.
Buying a car on credit isn’t only about getting the loan, but also about getting the absolute lowest rate you qualify for. Lenders measure risk; the greater the risk, the higher the interest rate. Your credit score and credit report are the key tools they use to measure the risk of giving you a car loan. You need to know how potential lenders might see you.
It’s also important to note that credit reports can have errors. Check your credit report line by line and make sure all of the information is accurate. All three credit bureaus have a process for challenging mistakes and correcting them. If you find an error, challenge it.
Repair What You Can
With your credit report in hand, determine what you can fix. Settle any balances in collection. Make and follow a plan to bring past-due balances up to date. Make sure you consistently pay bills on time. And avoid charging and borrowing when you can.
As you get farther away from the repossession and other negative credit, your credit score will improve, but getting your credit in order requires time, commitment and discipline.
Accumulate a Down Payment
Admittedly, because you have so much to accomplish with your cash as you pay off past-due bills, the goal of putting some money away for a down payment might seem unimaginable. However, lenders view a hefty down payment as serious evidence a borrower is in control of his finances.
Steve Bowman is chief credit and risk officer at GM Financial, the financing arm of General Motors. According to him, lenders think more of a cash down payment than they do a trade-in with some equity.
“The higher the down payment, the better the chance of approval,” he said. “Cash is looked at more favorably than a trade down (trade-in with equity).”
A 20 percent cash down payment would really grab a lender’s attention.
A lender will probably require a number of documents from you. Having those documents handy will show the lender you are organized and serious minded. According to Bowman, a lender is more likely to look favorably on an applicant who has all of their paperwork in order. Don’t be shy about asking a lender what documentation is required during your initial contact.
At the very least, the lender will want to see a valid driver’s license, a recent pay stub and proof of insurance. Other required documents may include a current utility bill and even your most recent federal income tax return.
Know that the lender will carefully check every claim and statement you make; so always be truthful. The lender will verify your employment and carefully check your credit. Never tell a lender something that isn’t true.
“Most subprime lenders do a more intense due diligence,” Bowman cautioned. “Be upfront. Know that everything is going to be verified.”
Buy What You Can Afford
Getting a car repossessed is a ride around the block on the reality bus. When it comes to shopping for your next car, be realistic. Think: small. Think: basic. Think: reliable. Until you get your credit in order, you don’t have the luxury of buying a car because it’s cool, fast or the newest “big” thing.
All you really need is reliable transportation. Be willing and prepared to settle for that.
What it means to you: With a little patience and some work, you can make yourself look like a reasonable credit risk to lenders even after a repossession.