That said, alternative and subprime lenders will still give you a car loan, but you will need a stable income, a larger down payment and have all of your outstanding balances resolved. You should also be prepared to have a higher interest rate.
How it Works by Province
When it comes to getting a car loan after a repossession, the process doesn’t vary much across provinces. That said, the biggest difference lies in the repossession process and what remains on your credit report since repossession laws vary.
British Columbia and Alberta: In Canada, these two provinces operate under seize-or-sue laws. This means that the only thing the lender can do if you don’t make your payments is take the vehicle back. After the lender sells the vehicle, they’re unable to sue you for any remaining balance on the car loan for the repossessed vehicle.
Most of the Other Provinces: Many other provinces in Canada operate under seize-and-sue laws. Under this law, lenders can both repossess the vehicle and legally force you to pay any outstanding loan balance. This will include the remaining balance owing on the vehicle, as well as any collection and storage fees that may have been incurred.
In any province, to get a new vehicle after a vehicle repossession, you’re going to need to have a large down payment and be prepared to deal with an alternative lender. You should also be prepared to pay higher interest rates and have any remaining balance that you owe paid off.
How Long After a Repo Can You Get Another Car Loan?
While there isn’t a definite repossession waiting period for when you can get another car, it is recommended that you wait for 6 to 12 months before you start shopping. That said, if you do attempt to get a new secured car loan right away, there’s no guarantee that you will get approved.
If you wait 6 to 12 months, you can increase your chances of approval by showing lenders that you have a stable income and employment. This is because a previous repossession is a red flag to lenders, and stability indicates lower risk, especially if you’re able to keep up with your other debts.
Loopholes When it Comes to Car Repossession
Unfortunately, there aren’t any legal loopholes that can stop the vehicle repossession process other than a voluntary return of the vehicle (also known as voluntary surrender). However, consumer protection laws govern how lenders and repo agents may operate in voluntary or involuntary repossession.
- The person repossessing the vehicle is unable to:
- Use physical force
- Make threats
- Break into a locked garage to get to the vehicle (this includes closed garages)
- Depending on where you live, it’s common for a mandated notice to be sent via written notice, specifying a period of time to make payments before the vehicle can legally be seized, and you’ll see a repossession on your credit report.
- They are required to let you retrieve your belongings from the vehicle. It’s not uncommon for this to happen at the impound yard after the car has been repossessed.
The Credit Score Needed for a $30,000 Auto Loan
If you’re looking into getting a $30,000 loan with a dealer, the credit score needed to get a $30,000 auto loan is 650 or higher. In some cases, depending on your other factors, you can also get approved with a credit score between 600 and 649; you might just get a lower interest rate. Your financial situation and current income will still make a difference.
If you have a credit score below 600, your best chance of approval is with a subprime auto lender or an alternative lender. These types of lenders focus on more than just your credit score when they decide on approval, making your chances of getting a loan much higher. For those looking for second-chance auto financing, it can be a great way to get a credit-building auto loan.
How to Fix Your Credit Quickly After a Repossession?
How repossession affects your credit score is going to vary, but there are things you can do to improve your credit score, some of which make the process go a little bit faster. While the credit rebuilding timeline will be different for everyone, these factors can still make a difference.
Get Rid of Any Outstanding Balances
If you’re in a position where you end up owing a deficiency balance, then the best thing you can do to help improve your credit situation is to make the outstanding payments. If you’re unable to pay off the full balance, another option is to settle with the lender.
Build a Positive Payment History
Getting a secured credit card is a great way to build a positive payment history when rebuilding credit after default. For these cards, you must put down a deposit before you can activate them. The deposit you make will affect the limit on your card. To show the best impact on your credit report, the best thing you can do is keep your utilization below 30% and make your monthly payments on time.
Monitor Your Credit Report
Keeping track of your credit report is another great way to improve your credit score. This will allow you to catch any errors and dispute them promptly. It will also document when the repossession occurred and notify you of other credit situations that may impact your score. Many sites allow you to do so for free.
How Long Does a Repossession Stay on Your Credit Report?
How long a repossession stays on your credit report depends on the credit bureau and where you live in Canada. That said, the general rule of thumb is that Equifax will remove negative marks from your credit report after 6 years, while TransUnion can keep them on file for up to 7 years. In terms of a rating, an R8 for repossession stays on your report until it drops off. During this time, you can still get non-prime car financing with both new and used car financing options.
The Average Car Loan Interest Rates That Follow a Repossession
After you’ve had a repossession on your credit report, it’s not uncommon to get a high-interest auto loan with a rate anywhere between 19% and 30%. This is because you usually have to go with an alternative lender that is willing to take on more risk, since that’s what a repossession signals, whether you get rid of the car voluntarily or not.
That said, after 18 to 24 months, the rate that you can get will likely drop, and your approval odds will increase. Especially if you have newer credit lines and have increased your positive payment history. Providing a larger down payment, whether there’s a down payment requirement or not, is also a good way to increase your chances of getting a lower interest rate.
Should You Get a Cosigner After a Repossession?
After you go through a repossession, getting a cosigner generally isn’t recommended because it puts the cosigner at risk. However, for someone who has gone through a repossession, it can be much easier to get a lower interest rate. Before you do this, though, there are a few things you need to consider.
Risks to the Cosigner: When it comes to the cosigner, they’re signing on for equal liability, meaning that they will have to make the payments if you’re unable to make them. If you miss any payments, the cosigner’s credit score and an R8 or R9 can be added to their report as well. The cosigner can also be chased for unpaid balance,s repossession fees.
Better Alternatives: Instead of using a cosigner, there are other options you can use. These options include saving enough cash to purchase another vehicle, securing subprime loans, or making a larger down payment.
How to Voluntarily Surrender a Vehicle and How it Differs from a Repossession
In both cases, the result is the same: you will lose your vehicle. The main differences are who initiates the action for the repossessed vehicle and any extra fees incurred.
Voluntary Surrender: This happens when you’re unable to make your payments and decide to willingly surrender the vehicle. This voluntary repossession avoids third-party collection fees and any towing and storage fees. You can also schedule a drop-off to have your possessions removed.
Repossession: This happens when the lender tracks you down and seizes the vehicle without your consent after you’ve already defaulted. This comes with fees that are charged by the repossession company that you have to pay. Since it isn’t voluntary, it will likely happen when you least expect it. That said, contacting the lender before this occurs can still give you some options for negotiating a repossession.
The Best Lenders to Use After a Repossession
When you’re looking at purchasing a vehicle after a repossession, it’s not uncommon to see car loan denial reasons that relate to your repossession. That said, using an alternative lender like Spring Financial could be a good financing option. This is because they help those with all credit scores and also consider your monthly income before deciding on approval. Other bad-credit auto lenders may be able to help.
In-House Financing for Borrowers After a Repossession
With some dealerships, in-house financing is available for those who’ve gone through a repossession. That said, the interest rate is going to be much higher than it is if you have time to build your credit score. However, you’re more likely to get faster approval and have your score overlooked, since the ability to pay will be more important. The biggest risk with this is that your payments may not be reported to the credit bureaus.
Factors Lenders Look at Besides Credit Scores
While your credit rating is important when it comes to your approval and interest rate, it isn’t the only factor used. In fact, many lenders, specifically alternative lenders, look at:
- Job stability
- Total monthly income
- Proof of income if you’re self-employed
- Debt-to-income ratio
- Savings
- Down payment
- Collateral
- Payment history (no late payments)
For alternative lenders, the ability to repay the funds is likely to be the most important factor.
Can a Single Missed Payment Put You at Risk for Repossession?
Depending on your situation, a missed payment can put you at risk for repossession. This is usually the case if you have a loan with subprime lenders or if your contract states so. However, for most traditional lenders, you must have two or three missed payments or be 60 to 90 days in arrears before action is initiated.
Contacting Your Lender to Help Prevent Repossession
If you’re in a position where you’re unable to make your payments, contacting the lender should be your first step. Most lenders are more than willing to help you discuss relief options such as:
- Payment deferrals
- Loan restructuring
- Reduced payment plans
It’s best ot contact them as soon as possible and explain the situation. You can also let them know when you expect the situation to be resolved. They can then let you know what options you offer to help with the payments. If this happens, the best thing you can do is get the agreement in writing.
How Can you Improve Your Chances of a Loan Approval?
When it comes to looking for a new vehicle ( a new loan with a new lender) after a repossession, there are some things you can do to help with your auto loan pre-approval. These things include:
- Getting a large down payment
- Working with an alternative or specialized lender
- Getting a co-signer for an auto loan
- Make on-time payments for all your other bills
Really, anything you can do to stabilize your credit history or prove that you can afford your payments will help with an approval.
How Much a Repossession Can Impact Your Credit Score
Going through a repossession in Canada can drop your credit score by 60 to 240 points. It really depends on where your credit score started. That said, it can also impact your credit report in other ways.
- It can stay on your credit report for up to 7 years.
- It will downgrade that specific account to an R8 rating.
- It can lead to a deficiency balance depending on the province that you’re in.
How Can Budgeting Help You Get Back on Track?
If you’re in arrears on your car payment, writing out your income against all of your expenses will help you learn where your money is going. It can help you determine which expenses you need to cut and what you can realistically afford per month. Depending on your spending, you might find you have more money than you think.
Is Debt Consolidation a Good Option When You Can’t Make Your Payments?
While debt consolidation can be helpful, the extent of its benefits depends on your credit score, total debt, and whether you qualify for a lower interest rate. If you can get a lower rate, you can consolidate all your payments into one lower monthly payment, leaving you with more money per month.
Alternatively, instead of going with personal loans, you can just refinance your auto loan. If you have a higher interest rate and have made consistent on-time payments, you may be able to refinance for a much lower rate and reduce your monthly auto payment.
If none of these options work, then the best thing you can do is speak with a licensed insolvency trustee. They usually only work with unsecured loans, not repossessed cars or the repossession process. They can help with payment arrangements and rebuilding your financial health.
Final Thoughts
Going through a repossession in Canada can have a negative, long-lasting impact on your credit score. Purchasing a vehicle after you’ve gone through a repossession can be difficult and very costly. Finding a lender that will even lend to you can sometimes be the most difficult part.
To avoid a repossession, the best thing you can do is contact your lender as soon as you know that you’re unable to make your payments. Most lenders will have options available to help out for the short term. There may even be long-term options depending on your contract.
