The Carreon and Associates credit education site says a lender is allowed to repossess your vehicle as soon as you default on the loan. Your contract will define what default means, but sometimes it can be as quick as missing one payment. This gives the lender the right to take your car without telling you beforehand and to come onto your property to repossess it, Carreon and Associates warns. You lose your transportation and you also take a big hit on your credit history.
Types
There are two types of vehicle repossessions. The most common type is an involuntary repossession. The borrower defaults on the loan and the lender makes arrangements to take the car. This usually takes place without notifying the borrower of when and where it will happen. A voluntary repossession is arranged proactively by the car owner when he knows he cannot pay for the vehicle. He takes it to the lender and hands over the keys.
Effects
Both involuntary and voluntary repossessions have the same effect on your credit history, John Ulzheimer of credit.com says. He states it is as a bad as having an account turned over to a collection agency or charged off by the lender as uncollectable. This can drop your credit score significantly. Creditors who review your credit reports will take it as a sign that you may default on future bills, causing them to deny your application or charge you a much higher interest rate.
Time Frame
While contracts often give the lender the right to take a car as soon as a payment is missed, Ulzheimer says it usually happens when the loan is 90 to 120 days past due. A vehicle repossession can legally remain on your credit reports for seven years, Carreon and Associates says. It will affect your credit history for that entire period, although Bankrate.com columnist Tara Baukus Mello says that its weight will lessen as time passes. This is especially true if you build a good payment record and perform responsibly on your others accounts after the repossession.
Prevention
You may be able to prevent a repossession by working with your lender. The bank may be willing to defer a payment or accept a smaller amount temporarily if you are undergoing a financial hardship. This will still have an effect on your credit history because the late or skipped payments will show up on your credit reports. However, they will not be taken as seriously as having your car repossessed.
Solution
You may be able to remove a vehicle repossession from your credit history, Carreon and Associates says. Look at the dates, account number, amounts and anything else that might be inaccurate because the paperwork is often misread or otherwise mixed up. File a dispute with TransUnion, Experian and Equifax as soon as you find a mistake. The repossession must be taken off your reports if your dispute is valid, which means it will no longer affect your credit history.
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