How to Get a Loan with Bad Credit After Vehicle Repossession

February 6, 2018

Canadians who have a history of car repossession on their credit report will often have a more difficult time getting approved for an auto loan. These 5 tips could help a person with bad credit get an auto loan after vehicle repossession.

According to Stats Canada, the average Canadian has approximately $1.74 of credit debt for every dollar of income.

High debt to income ratio could impact how successful Canadians are at paying back their creditors. The penalties for not being able to make payments on your loan can span from high-interest charges to collections accounts and at worst, bankruptcy. When it comes to your car loan, if you can’t afford to pay it, you’re not allowed to keep it. In Canada, there are over 33 million motor vehicle registrations. However, not all of them are being driven by people who can afford to pay their auto loans.

What is repossession?

“I have trouble with names and faces, but I never forget a car.” - The Love Bug (1968)

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Repossession is when your vehicle is taken away due to defaulted payments. Repossession is a non-negotiable act that entails your car being towed by a “repo man” and taken back to the lender. The lender will usually auction the vehicle off and apply the money to the debtor’s loan. Typically, it only takes one default payment for a person to be at risk of repossession. Although, a person who has a history of making regular payments on their auto loan is at less of a risk of having their car repossessed compared to someone who has defaulted more than once.

In Canada, there are two types of repossession:

  1. Voluntary repossession: When a person can’t make consistent car payments and willingly brings their vehicle back to the lender because they recognize that they can’t afford the auto loan.
  2. Involuntary repossession: When a person has defaulted on multiple loan payments and refuses to bring the vehicle back, the lender can legally reclaim the vehicle without the debtor’s consent.

The speed in which involuntary repossession occurs in Canada can sometimes depend on where the debtor lives – a person who lives up North or on an island, for example, might not have their car repossessed as quickly in comparison to someone who lives in a city. Although lenders are strict and take the act of repossession seriously, it is advised that a person speak with the lender if they can’t make a payment to see if a financial agreement can be settled – the lender might give someone who is truthful and honest about their debt situation an extra 30 days to pay back the amount owed.

If a lender grants a debtor more time to pay back a loan, it’s the consumer's job to do everything in their power to make the owed payment. This could mean cutting back on weekly budgets, picking up extra weekend jobs or putting any savings towards the owed payment. Any payment, even if it’s small, is better than nothing at all.

How to buy a car after repossession

Wondering how you’ll get back in the driver’s seat? We have good news... Your credit score may have taken a hit, but that doesn't mean it's impossible to get approved.. These tips will help you get approved again after a repossession.

  1. Prepare your down payment. If you’ve been saving up a down payment to buy a car, make it readily accessible in a chequing account or in cash. While zero down options do exist, a down payment will boost your chances of loan approval.
  2. Get pre-approved. Complete a credit application with a single source. Shopping your credit around can damage your chances of getting approved for a car loan. 
  3. Acknowledge your history with the lender. There’s no need to hide your previous credit history from the lender – they’ll see it on your credit report. Instead, openly discuss the repo so the lender can more accurately advise you on getting your application approved. 
  4. Line up a co-signer. Sometimes, you need help getting back on your feet financially. If you have a parent, friend, or family member who is willing to co-sign for your loan, you will have a greater chance of success getting approved. 
  5. Choose an affordable car. Select a vehicle that’s easily within your means to make payments consistently. A certified pre-owned vehicle may be one of your best options. 

Pro tip: Protect your investment. Often, unexpected car repair expenses force car owners to choose between making payments and fixing their cars. Buy a car with a warranty or add an extended warranty to help eliminate the potential for surprise bills.

The inability to pay your auto loan could result in repossession of the vehicle.

My car was repossessed, now what?

“I always say, the way a man treats his car is how he treats himself.” – The Transporter (2002)

old films, car movies, transporter, vintage cars, bank repossession, vehicle repossession

Unfortunately, car repossession occurs more frequently than we might think. Fortunately, if you’ve experienced car repossession, you’re not doomed for financial failure, and you’re not alone. A person who has experienced repossession needs to first see how their credit was impacted. Repossession marks on a credit report could drop a score 60 to 240 points. A larger drop is made to Canadians with good credit scores because it reflects a new risk level to creditors.

How long does a repossession stay on your credit report?

Repossession could stay on a person’s credit report for up to seven years. However, this doesn’t mean that the actual score will remain low the whole time. Based off credit history, lenders will consider the risk factors of an applicant, and through the process of a credit review, they’ll determine if you can qualify for a loan or not.

Can you get a car loan after a repossession?

Often, a person with repossession on their credit report will have a more difficult time obtaining a car loan because they are considered a high-risk to lenders. In the lender’s view, if you’ve defaulted on one car loan, what’s to prevent it happening again on a new one? Luckily, more lenders today are willing to take chances on borrowers with less than perfect credit through subprime financing.

How to repair credit after repossession

Should you ever experience having a vehicle repossessed, follow these five steps to ensure that your credit doesn’t get further damaged and to increase your chances of getting a low interest auto loan in the future.

  1. Avoid closing lines of credit (and avoid opening new ones): Instead of closing credit cards or other lines of credit, try your best to reduce the debt owed by making regular payments on time. Closing a line of credit could reduce your available credit, which in turn can damage your score, which is the last thing you want on your credit report after dealing with repossession. Additionally, avoid opening new lines of credit. Instead, focus on paying down the debt that you owe. Demonstrating exceptional repayment habits will increase your chances of getting an auto loan with fair interest rates.
  2. Repay outstanding debt on your car loan: If the sale value of your repossessed car is less than what you owe, lenders expect you to pay the difference, even if your car was taken away. Prioritize this debt to protect your credit from getting damaged even more.
  3. Start saving for a down payment: Getting approved for an auto loan after having a vehicle repossessed isn’t easy because lenders see a person with repossession as a risk. However, having a history of repossession on your credit report doesn’t mean that you can never own a car again. Putting a down payment on your next car loan is a great way to increase your odds of getting approved by lenders as a down payment demonstrates that you’re capable of saving money, which reduces the risk for a lender. Experts suggest putting a down payment of 20% if you want to get the best interest rates. Although this might take time, it’s worth it – time-saving for that down payment is time you can be using to help rebuild your credit.
  4. Think affordable: When you’re ready to apply for a new auto loan after repossession, think affordability. The more affordable the vehicle is, the easier it will be to pay off. An affordable vehicle means less money borrowed, which means better chances of getting approved by lenders.
  5. Be prepared: Coming out of a repossession is difficult for a lot of reasons. Lenders view you as a risk and your debt could feel heavier than ever. But focusing on developing a responsible payment history is what will get you to where you need to be credit-wise, thus proving to lenders that you’re capable and responsible enough to borrow money.

“Remember: the car is you, you are the car. Okay? Let’s ride!” – Gone in 60 Seconds (2000)

Canada Drives helps thousands of Canadians facing all types of credit situations find affordable auto financing by matching them with respectable dealerships who specialize in subprime financing. If you have a history of repossession on your credit report, click here to get pre-approved today!


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