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Can You Refinance Your Auto Loan After Repossession?

Can You Refinance Your Auto Loan After Repossession?; If your car has been repossessed, can you still refinance your auto loan? Learn more from Lantern by SoFi.
Susan Guillory
Susan GuilloryUpdated March 13, 2023
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
Refinancing your auto loan after repossession is possible. If your car gets repossessed, knowing what to expect and what your options are for refinancing can make the situation a little less intimidating.Losing your vehicle to repossession is not necessarily permanent. Lenders may be willing to negotiate new terms following a repossession. Below we highlight steps you may take if you’ve lost your vehicle to repossession.

When Can a Car Repossession Happen?

It’s rare, but it can happen that you’re unable to pay your monthly loan payment on your car and the bank repossesses it. Now you’re without a vehicle to get to work, and you’re likely at a loss about what to do next and may be asking yourself questions like, “Can I get my car back? Can I refinance my car loan after repossession? Can someone take over my car loan?”A car repossession can happen if you default on a secured auto loan. A secured auto loan is a traditional car financing contract in which the lender has a lien or security interest in the vehicle until the loan is paid off. The security interest gives the lender the right to seize or repossess your vehicle if you default on the loan. A default can occur if you fall into delinquency and fail to make required car loan payments.A number of situations can result in your not being able to make your loan payment. You might have lost your job and not have the funds to cover your bills. Or maybe you have an upside-down auto loan, meaning you owe more than the vehicle is worth and are struggling to pay it down.Some lenders may be flexible and give you a little leeway if you’re having a temporary financial issue. The key is to communicate with your lender (rather than avoiding its calls) to find a way to avoid car repossession at all costs.

How to Get Your Car Back from a Repossession

Whether you can get your car back after being repossessed depends on several factors, such as how many months you’ve gone without making a payment on your loan. If it’s been a month or two, your lender may work with you to let you catch up on late payments and get your vehicle back. If it’s been longer, the lender may sell your car at auction to recuperate the cost of the loan you didn’t finish paying.In addition to catching up on past-due payments, you may also have to cover costs associated with the repossession process, which could include towing and vehicle storage.It’s important to understand also that if your car is seized and sold at auction, you may still be on the hook. If the auction sells the vehicle for less than you owe, you will still be responsible for paying the balance of the loan, including any outstanding principal, interest, and fees. Let’s say you owe $3,000 and the car sells for only $2,000. You would still owe your lender $1,000, even though you no longer have the car.

Can You Refinance a Car Loan After Repossession?

So, can you refinance an auto loan after repossession? Yes, refinancing your car loan after repossession is a possible option to explore.If you want to refinance after repossession, it might make sense to refinance with the lender you already have a loan with. But realize you’ve got a lot working against you there, since that lender has already seen you miss payments and has had to go to the trouble of repossessing your car. However, your lender might consider giving you a refinance if you refinance over a longer period for a lower monthly payment.If your original lender refuses, you’re not out of options for refinancing your auto loan after repossession. Check to see if you qualify with a bank or another auto lender. If you don’t, perhaps because your credit scores dipped from delinquency and repossession, consider adding a cosigner to qualify for a refinance auto loan at a decent rate.The key here is: shop around. That’s just good advice for how to shop for a car loan in general, but it’s especially useful if you want to refinance after repossession. 

Watch Out for Predatory Lenders

When you start looking for refinancing options after your car is repossessed, you may come across lenders who seem ready to bend over backward to get you the refinance loan you need. But that comes at a price.These lenders may say that even if you have bad credit, you can qualify for a car loan. This could be appealing if you do indeed have bad credit. But look out for astronomical interest rates, hidden fees, and other tactics associated with predatory lending. Read the fine print carefully and don’t let a sales rep pressure you into financing you’re not fully on board with. Ask lots of questions. Thee might include the following:
  • What’s the monthly payment?
  • For how many months will you have to make payments?
  • What’s the APR on the car loan?
  • Do the finance charges on the car loan use simple or precomputed interest?
  • What’s the total cost of the loan?
  • Are there any prepayment penalties or other fees?
Finally, if your gut says something is fishy, just walk away.

How Long Does a Car Repossession Affect Your Credit?

Does refinancing hurt your credit? Yes, refinancing may cause a temporary dip in your credit score if the lender conducts a hard pull inquiry into your credit report. But having your car repossessed can cause greater damage. A car repossession can affect your credit in the following ways:
  • Repossession can leave a derogatory mark on your credit report for seven years from when you stopped paying your auto loan.
  • Having a repossession recorded in your credit report can make it more difficult to get another loan.
  • You’ll have late or missing payments on your auto loan, which may be reported to credit bureaus.
  • If your car is repossessed, you may have a collection account on your credit report reflecting that.
  • You may also have a court judgment if the collections company is unable to collect the balance you owe.

Is Voluntary Surrender Better Than Involuntary Repossession?

There is one way you may be able to mitigate a little of the damage that getting your car repossessed can cause (including the embarrassment of having your car towed out of your driveway). It’s called voluntary surrender.Some borrowers with delinquent car loans may prefer voluntary surrender over having their car taken at an unsuspecting time through repossession. Voluntary surrender happens when you contact your lender and volunteer to give up the car rather than having it repossessed involuntarily. This shows your willingness to be responsible and can save you the hassle of an involuntary repossession. Nonetheless, voluntary surrenders may appear on your credit report.

What Is a Voluntary Surrender?

Rather than waiting for your car to be taken, you can reach out to your lender to inform it that you are unable to continue paying on the loan. You can then make arrangements to give up the vehicle of your own accord. This is called a voluntary surrender.A voluntary surrender may lead to the following outcomes:
  • When you reach out, the lender may want to work with you to find a way for you to continue paying the loan.
  • The voluntary surrender may appear on your credit report as a voluntary surrender, which can show other lenders that you were cooperative in trying to work out a solution on your auto loan.
  • Your credit scores may be impacted.
A voluntary surrender is a derogatory event, but some creditors may view it as less egregious than an involuntary repossession. That being said, losing your vehicle to repossession is not necessarily game over. You may be able to get your car back by reinstating your car loan.

The Takeaway

It may be possible to refinance a car after repossession. But nothing is guaranteed. You’re probably better off if you can figure out a way to keep up with your payments and avoid repossession if you can.Now that you understand more about how to refinance a car loan after repossession, you may want to explore your auto refinancing options at Lantern by SoFi. You can compare rates and choose a car refinance loan that’s right for you.Compare auto loan refinance rates with Lantern by SoFi.

Frequently Asked Questions

Can you refinance after your car has been repossessed?
What does it mean to be upside down on a car loan?
Can you get a loan after a repossession?
Image credit: iStock/tommy

About the Author

Susan Guillory

Susan Guillory

Su Guillory is a freelance business writer and expat coach. She’s written several business books and has been published on sites including Forbes, AllBusiness, and SoFi. She writes about business and personal credit, financial strategies, loans, and credit cards.
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