How Bad Does a Car Repo Hurt Your Credit?
- A car repossession stays on your credit report for up to seven years and can lower your credit score by more than 100 points.
- If your car is repossessed, you may still owe a deficiency balance after the vehicle is sold.
- You may be able to prevent a repossession by quickly contacting your lender, refinancing the loan or selling the car.
- After a repossession, you can rebuild your credit score, and financial stability, with consistent positive financial habits over time.
A repossessed (repo) car doesn’t just represent lost money and mobility. It’s also stressful and scary — largely because a repo is one of the most damaging marks you can have on your credit report. It can remain on your credit report for up to seven years and lower your credit score by 100 points or more.
Lenders may wait for two or three missed payments before they repossess your vehicle. But in some cases, they can legally take action after as little as one missed payment.
This article explains how a car repossession hurts your credit, and how to avoid it.
How car repossession affects your credit
A repossession can remain on your credit report for up to seven years, and people have reported losing anywhere from 100 to 160 points as a result of repossession.
Here’s how it works. If you finance a car purchase, your lender can forcibly take back your vehicle if you don’t make your monthly payments. This action is called repossession or repo — and in some states, a lender can seize your car as soon as you are late on your first payment.
Certain states require lenders to notify you before repossessing your car. But in others, lenders aren’t required to alert you about missed payments or offer you ways to pay back what you owe.
While the repossession stays on your credit report, you’ll find it harder to qualify for credit cards and loans, such as a mortgage. The credit effects of a repossession can also affect other areas of your financial life. You could end up paying higher car insurance premiums, depending on where you live, and higher interest rates on loans.
Some landlords also review credit reports, which means a repossession on your record can make it harder to secure housing.
Having your car repossessed won’t magically wipe out your debt, even if you’re willing to take the credit hit. After your vehicle is repossessed and sold, many borrowers still owe money: The average post-repo balance, called a deficiency balance, was more than $11,000 as of late 2022, according to the Consumer Financial Protection Bureau (CFPB).
How bad does a voluntary repo hurt your credit?
A voluntary repossession happens when you proactively return your car to the lender after missing your payments, instead of waiting for the lender to claim the vehicle.
While this option gives you a little more control, the impact to your credit is almost identical to that of an involuntary repossession. Your credit score can still drop by 100 points or more, and the repossession will still remain on your credit report for seven years.
However, a voluntary repo can sometimes reduce fees because you avoid towing and collection costs. Empathetic lenders may also look more favorably upon a voluntary repossession because it shows that you took action and responsibility in a difficult situation.
How to fix credit after a car repossession
A repossession will stay on your credit history for seven years, but the damage does not last forever. The impact of a repo lessens over time if you work to rebuild your credit.
These specific steps can help you improve your credit after a repossession:
- Pay all of your other bills on time to show consistent, positive payment history.
- Consider opening a secured credit card to safely rebuild your credit score.
- Keep your credit utilization ratio low by paying off your credit card balance in full every month.
- Monitor your credit so you can get alerted to, and then address, any credit issues right away.
Get free, personalized recommendations on how to improve each of the factors that affect your credit score with LendingTree Spring. We’ll show you how your credit stacks up and what to do to boost your score.
How to stop repossession of a car
If you are behind on payments but want to avoid repossession, there are steps you can take before the lender starts the repo process:
- Contact your lender immediately to discuss hardship programs or deferment options.
- Refinance your loan, if you qualify, to reduce your monthly payment and make it more affordable. This likely means paying more in interest over time.
- Sell or trade in the vehicle before repossession to pay off the loan balance and protect your credit.
Additionally, if you act quickly and have the financial means to catch up on your car payments, you may be able to work out a solution with your lender to get your car back before it’s sold.
What happens if your car gets repossessed?
Once your car has been repossessed, it’s usually sold at auction and the money from the sale goes toward your loan balance. The entire process can move quickly, sometimes within just a few weeks after a single missed payment depending on the state you live in.
If the car sells for less than what you owe, you are still responsible for paying the difference, known as a deficiency balance. On top of that, you may also owe repossession fees and collection costs. In the rare event that the car sells for more than what you owe, you may be able to pocket the surplus after all fees have been paid.
If you pay the full past-due balance along with any repossession fees, you may be able to get your car back after repossession. Vehicles are usually sent to auction, so timing is critical if you want to retrieve your car before it is sold.
Frequently asked questions
Laws and timelines vary by state. In many cases, you may be able to get your car back quickly if you communicate with your lender and pay the full amount overdue, as well as any fees, before the repo car is sold at auction.
If your loan agreement requires insurance coverage but you let it lapse, you are in breach of your financing contract and could be liable for a potential repossession, among other consequences.
Yes, a partial payment is still considered a breach of your car loan contract because the amount you owe has not been paid in full. If you do not make the complete required payment, the lender can still consider your account delinquent and move forward with repossession.
If your car is missing, first contact your lender to confirm it was repossessed. If it was not, contact the police to report the vehicle as stolen.
Yes, a car can be repossessed on private property in many states as long as the action does not breach the peace or require entrance into locked garages.
You may be able to refinance your repossessed car under rare circumstances, but a repossession typically damages your credit badly enough that refinancing is an unlikely option.
No, you cannot go to jail for a repo. Repossession is a civil matter, and does not result in jail time.
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