A vehicle repossession on your record can make securing a new car loan more difficult. Local finance experts say that the two biggest reasons why vehicles are repossessed in the Philippines are; (1) not getting one’s finances in order, and (2) job loss. To increase your chances of getting a car loan despite this significant financing blemish, you need to find a lender that considers the unique factors of your situation. Let’s begin your journey toward becoming a car owner again by answering a few key questions:

  • How long has it been since your car was repossessed?
  • What’s your current credit score?
  • Does your previous auto loan have any balance that remains unpaid?
  • If your car was repossessed because you lost your job or went through a serious medical issue, have you regained your financial footing and are in a good position to finance a car purchase again?

Yes, you can still get approved for a new car loan after repossession, but it’s essential to ask these questions and address them individually.

Understanding the vehicle repossession process

A vehicle repossession occurs when a buyer fails to meet his monthly payments for a car loan. The lender hires a repossession agency to retrieve the vehicle from the borrower, which will then be sold at auction. Technically, a single missed payment is enough reason for a lender to repossess a car, but most of them offer a grace period to give the borrower time to catch up on his payments.

After the vehicle has been repossessed and sold at auction, a borrower can still owe money if the vehicle sold for less than the loan balance and the costs of repossession, which is often passed on to the buyer. If you have any unpaid amount, clearing the balance will be the first crucial step to getting your new car loan approved.

How to get car financing after a repossession

A repossessed vehicle can greatly diminish your credit score and leave you in the subprime category. The most important thing to remember about raising your credit score to an acceptable level is that your score is not dependent on a single factor, but a combination of many factors. You can offset the impact of a repossession on your credit through other elements.

Repay the debt

As mentioned, repaying the debt you may still owe is the crucial first step. Make arrangements with your lender or repo agency to repay any remaining balance on the repossessed car. When you allow the debt to remain without making any effort toward repayment, you are only making it harder on yourself to get approved for a new car loan.

Allow time to pass

A repossession will appear on a credit report for many years. Nevertheless, it won’t have the same impact with the passage of time. Credit-worthiness is depends a lot on how risky you are to the lender right now, not in the past, nor in the future. If your car was repossessed just recently, allow time to pass to give yourself more opportunities to improve your credit score. Take as much time as you can, and make regular payments while you’re at it to gradually improve your credit rating.

Save up for a sizeable down payment

Saving up for a down payment can be unimaginable in your current situation, since you may have to allocate much of the money you earn to paying off your bills. That said, you’ll definitely want to do this, because lenders view a huge down payment as proof that the borrower is in control of his finances. The more money a lender releases in a loan, the greater the risk they take on. A bigger down payment decreases the amount of money financed, which means reduced risk to the lender. With that mindset, your lender will feel more inclined to approve your loan.

Obtain a low balance credit card

For building or repairing your credit score, you can get a credit card with low balance. Be sure to use your new card responsibly, and be diligent with your payments. You may also try a secure credit card, which requires a security deposit equal to the credit limit. The security deposit insulates the creditor from risk, while the payments you make each month helps restore your credit-worthiness.

Be prepared with your documents

A lender will likely require you to submit a number of documents, including a valid driver’s license, current utility bill, recent pay slip, recent federal income tax return, and proof of insurance. Don’t be afraid to ask a lender which types of documentation is required during your initial meeting, as they often favor an applicant who has all of his paperwork in order.

Be open about your credit past

Be honest and accurate about every claim and statement you make when they interview you. With your tarnished record, know that the lender will double-check the info you provide, so never tell a lender something that isn’t true—you won’t help the approval process by being coy about your credit history. You may be asked to bring a written explanation from your previous lender explaining why your vehicle was repossessed. This may enlighten your prospective lender about want happened, and may be used to confirm your own explanation about a finance-altering life event.

Finance what you can afford

When it comes to financing your next car, be realistic. Unless you managed to turn your credit score around, you don’t have the luxury to buy an expensive car, so think small and basic. Only look at cars that fit your budget, and focus on features that satisfy your needs, not your wants. All you really need is a reliable car, so be ready to settle for that, because you definitely don’t want to see another car being hauled away again. Once you’re current with your payments and your credit score has improved, then maybe you can opt for a better car the next time around.

Vehicle repossession doesn’t have to be the end of the road—consider it as a hurdle or bump that you simply need to overcome. Don’t give up on the possibility of ever owning a car again, because with a little work, patience, and discipline, you can.