If you're like many people, you need a car to get to work and earn money. After a lender repossesses your vehicle, you might be frantic to replace it so you can continue to pay your other bills and prevent a bad situation from becoming even worse. Your best option is to try to avoid the repossession, if at all possible. But if it happens, it doesn't necessarily mean that no company will ever extend you credit again.
How Long It Hurts You
A repossession remains a blemish on your credit report for seven years. It might drop your FICO score to 500 or lower, though you can repair this over time. Your FICO score is a measure of your creditworthiness, and how low it falls after a repossession depends on the rest of your credit history as well. A score of less than 500 makes lenders very wary about advancing you money. The top finance companies with the lowest interest rates will probably deny you credit. However, that doesn't mean that all lenders will do so.
How a Low FICO Score Hurts You
If the standard lenders deny you, you'll have to look to subprime lenders for loans. Subprime loans are those with higher interest rates to balance the risk the lender takes. As of August 2011, large banks and lending institutions offered customers with the best FICO scores, usually 700 or better, interest rates in the area of 3.25 percent. With a repossession in your credit history, you can expect an interest rate of 17 percent or more, and only certain lending institutions will be willing to take you on.
What to Do
You first goal should be to repair your credit. Take out a small credit card, one secured by a deposit if necessary, and make the payments consistently. If you need to replace your car immediately, take a subprime loan. The higher interest rate might make the monthly payment more than the one on the car you lost, but if you make the payments on time for six months to a year, you might be able to refinance the loan at a somewhat lower interest rate. You might have to readjust your budget to accomplish this task, perhaps by taking on a second job or cutting discretionary expenses for a while. But it might go a long way toward repairing the damage the repossession did to your FICO score and your credit history.
Other Options
If your credit record wasn't good before the repossession, even a subprime lender might deny you, depending on how low your FICO score drops. You can probably still get a secured credit card, but you might have to explore other options to replace your car. Some used car lots will finance you directly, without involving a bank or lending institution. You won't get a great vehicle, and the interest rate might be even higher than a subprime loan, but such dealers don't always run your credit report. You'll have transportation to get back and forth to work while you repair your credit.
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