Suppose you’ve already been through one auto loan. In that case, you may think it’s impossible to get another auto loan after repossession or that it will be too expensive and too difficult to qualify. Not so.
With the right approach, you can find the right lender and take advantage of refinancing your auto loan to save money and stress now and in the future. Here is how you can secure a car loan after repossession.
Know Your Credit Situation
Before you decide on refinancing, it’s important to know where your credit situation stands and what your options are. The better your credit, the lower your interest rate will be—and lower interest rates generally mean less money out of pocket each month.
If you have good credit but still get turned down for refinancing, it might be because you lack sufficient equity in your vehicle. This can happen if you have an older car that has depreciated significantly over time.
Building Credit Before You Apply
Since most lenders will use your payment history on your existing debt to predict your future payments, it’s important to start building up a good credit history before you get behind on payments.
So if you have not been able to get a car loan or refinance your current auto loan, don’t worry. There are still ways for you to build up your credit and get yourself back on track.
Apply With a Co-borrower or Cosigner
In some cases, lenders will allow you to apply for an auto loan as a co-borrower or cosigner with someone who has good credit. This way, they can rest assured that if you default on your car loan, there’s someone else responsible enough to pay it off.
You’ll typically need a credit score above 680 and a good income and credit history in order to qualify.
Get Together a Good Down Payment
The most important thing you can do when refinancing is get together a good down payment. Many lenders will require that you have 20% or more of your new loan amount in cash before they even consider your application, and some may want as much as 40%.
So if you don’t have enough to put down on a car loan after repossession, try saving up until you do. It is be worth it in terms of how much lower your monthly payments will be later on.
Choose the Right Lender
Now that you’ve reestablished your credit, it’s time to choose an auto lender. Lenders vary widely in price and quality, so shop around for rates and fees that work for you. Make sure you get quotes from at least three different lenders before refinancing your auto loan.
Pay Close Attention to Loan Terms
When you’re shopping for a new car loan, it pays to know your options. If you have credit problems, auto lenders are more likely to extend loan terms—perhaps even longer than you need. According to Lantern by SoFi, “The longer the loan term, the lower the monthly payments will be, but that means you will pay more interest over the life of the loan.”
You may be able to find an auto refinance lender that will give you exactly what you need at reasonable terms.
The Auto Loan Refinance Option
When you need help getting back on track with your car payments, consider a refinancing auto loan. Not only will refinancing lower your monthly payments, but it can often bring down your interest rate as well—which will help you get back in gear faster. Refinancing isn’t for everyone, though. If you have bad credit, you’ll likely receive a higher interest rate—and there are penalties for early repayment in most cases.
Not all repossessions spell financial doom. For some people, they’re actually an opportunity to rebuild their credit score and get back on their feet. Refinancing your auto loan is one of many ways you can do so.
