How a Car Repossession Can Impact Your Credit Score

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Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.

how does a repossession affect your credit

Having a car payment can stretch your finances to the breaking point. According to Experian, the average car payment for a new vehicle is $515.

Combined with student loan debt, rent, and other essentials, that high payment can cause you to fall behind. If you become delinquent on your car loan, though, you could face repossession.

But exactly how does a repossession affect your credit? It can have a significant impact, so it’s important to know how severe a repossession is and what you can do to repair your credit.

What is car repossession?

Your car is one of the most essential — and expensive — things in your life. It gets you to work, allows you to take your kids to school, and helps you complete your errands faster than if you relied on public transportation.

But the cost of owning a car can be high. You might even have trouble keeping up with your payments. If that sounds like your situation, you’re not alone.

According to a Federal Reserve Bank of New York report on household debt and credit, auto loan delinquencies are on the rise with 4.1% of auto loan borrowers being 90 or more days behind on their payments. That means millions of people could face auto repossession.

When you don’t make your payments on time, your lender can repossess the car and sell it at auction to recoup the value of the vehicle. Although each state has its own laws about repossession, lenders in general can seize your car as soon as you miss a payment.

They might not even have to give you a warning or get a court order. Lenders can send repossession companies to your home or workplace to collect the car.

How does a repossession affect your credit and finances?

If your lender repossesses your car, you’re not off the hook. The lender can send you to collections, and you could face severe consequences.

If you’re facing car repossession, this is what can happen to your credit and finances.

You might be responsible for the deficiency

When your lender seizes your vehicle, it sells it at auction to try to get back some money. If the car sells for less than what you owe on the vehicle, the remainder is known as the deficiency. In most cases, you’re responsible for paying off the deficiency and any other fees.

For example, if you had a car loan with a balance of $10,000 but the lender sold your car for just $7,000, you’d have to pay the lender the remaining $3,000.

It can stay on your credit report for up to 7 years

Going through repossession can haunt you for years. According to Experian, negative account information such as missed payments can remain on your account for seven years. A repossession is a severe blemish on your credit report.

Your credit score will go down

A car repossession can ruin your credit history and could plummet a good credit score overnight. How much your credit score drops depends on your unique situation, but a decrease of 100 points is not uncommon.

It might be difficult to get other forms of credit

When a car repossession appears on your credit report and your credit score drops, lenders take that as a red flag. They view you as a high-risk borrower since you already defaulted on one loan.

Your tarnished credit report can make it more difficult to get other forms of credit, such as a mortgage. Even finding a personal loan lender or credit card company willing to work with you can be challenging, so you might have to rely on just cash until your credit improves.

How to repair your credit

Although a car repossession is serious and has long-lasting repercussions, you’re not stuck with bad credit forever. There are five ways you can repair your credit:

  • Find out if loan reinstatement is possible: In some cases, you can get your car back and minimize the damage to your credit report by reinstating the loan. To do so, you must pay the past-due monthly payments, interest, penalties or late fees, and any repossession or storage costs.
  • Redeem the car if possible: If you can find the money, either by emptying savings or asking friends and family for help, you can limit the impact on your credit score by redeeming the car. That means you buy back the vehicle by settling all your past-due payments, as well as the remaining balance of your loan.
  • Pay all your bills on time: Making your payments on time is the single biggest contributing factor that determines your credit score, accounting for 35% of your score. You can protect your credit from further dips by making sure you make every payment on all your debt and other obligations by their due dates.
  • Shop around for a secured credit card: If you can’t qualify for a regular credit card, you can rebuild your credit by using a secured card. With a secured card, you borrow against yourself. You deposit a set amount, and the money you deposited is your credit limit.
  • Consider a credit-builder loan: Applying for a credit-builder loan can help you establish good credit. With this type of loan, the money doesn’t come to you right away. Instead, you make regular monthly payments. At the end of the loan term, the lender releases the money to you. Each payment is reported to the credit reporting agencies.

Getting back on track

How does a repossession affect your credit? Beyond losing out on transportation, repossession can have significant consequences that plague you for years. But by focusing on managing your finances responsibly and improving your credit score, you can minimize the damage and get back on track.

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1 Includes AutoPay discount. Important Disclosures for SoFi.

SoFi Disclosures

  1. Personal Loans: Fixed rates from 5.950% APR to 14.740% APR (with AutoPay). Variable rates from 5.825% APR to 14.365% APR (with AutoPay). SoFi rate ranges are current as of May 18, 2018, and are subject to change without notice. Not all rates and amounts available in all states. See Personal Loan eligibility details. Not all applicants qualify for the lowest rate. If approved for a loan, to qualify for the lowest rate, you must have a responsible financial history and meet other conditions. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, years of professional experience, income and other factors. See APR examples and terms. Interest rates on variable rate loans are capped at 14.95%. Lowest variable rate of 5.825% APR assumes current 1-month LIBOR rate of 1.90% plus 4.175% margin minus 0.25% AutoPay discount. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account.
  2. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)

2 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Personal Loan Rate Disclosure: Fixed interest rates range from 4.99% – 16.24% (4.99% – 16.24% APR) based on applicable terms. Lowest rates shown are for eligible applicants, require a 3-year repayment term, and include our Loyalty and Automatic Payment Discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
  2. Loyalty Discount: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower has a qualifying account in existence with us at the time the borrower has submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, student loans or other personal loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI and VT. This discount will be reflected in the interest rate and Annual Percentage Rate (APR) disclosed in the Truth-In-Lending Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan, and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  3. Automatic Payment Discount: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their Citizens Bank Personal Loan during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account two or more times within any 12-month period, the borrower will no longer be eligible for this discount.

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  • Your loan terms are not guaranteed and are subject to our verification and review process. You may be asked to provide additional documents to enable us to verify your income and your identity. This rate includes an Autopay APR reduction of 0.5%. By enrolling in Autopay your payments will be automatically deducted from you bank account. Selecting Autopay is optional. Annual Percentage Rate is inclusive of a loan origination fee, which is deducted from the loan proceeds. Late payments or subsequent charges and fees may increase the cost of your fixed rate loan. All loans made by WebBank, member FDIC. Please refer to Upgrade’s Terms of Use and Borrower Agreement for all terms, conditions and requirements.
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Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.