Nobody likes to think about worst case scenarios, but in order to prevent them from happening you need to understand how to avoid them in the first place. In the case of bad credit car loans in Hamilton, the one thing you’ll want to avoid is getting your car repossessed. Not only will it look bad on your credit history, but your pride will certainly take a hit from it as well.
If you currently find yourself in this position or you’re simply trying to inform yourself on this “worst case scenario”, you’ll be happy to know that there are options available to you to help rectify the situation and potentially get your car back. But before we breakdown those options, let’s see how you (or someone else) got into this situation in the first place.
Secured VS. Unsecured Car Loans
When you purchased your car, you probably did it thanks to the help of a bad credit car loan. Often times, people don’t have the $15,000-20,000 lying around to purchase the new or used vehicle they have their sights on. That’s when they look to finance their purchase with the help of a bank, credit union, car dealership or other alternative lender. There are two types of loans available in the market right now — secured and unsecured loans. Here’s how they differ:
When you apply for a secured loan with your preferred lender, in order to strike a deal you need to provide them some sort of collateral — in this case, your brand new vehicle. This is the loan type that puts you at risk of getting your car repossessed. If you fail to make your monthly car loan payments, lenders are within their rights to repossess your car in an effort to try and recoup the money they lost in this contract. They do this by putting your vehicle up for auction and getting the money off of the sale.
Using your car as collateral helps keep borrowers accountable for the money they’ve been given by their lender and ensures that they pay it back, as per the agreement they signed off on. Because there’s some personal property on the line with this loan, interest rates are usually a bit lower than unsecured loans. Because of that, new car owners tend to go with this loan option. While the thought of getting your car repossessed can make you feel a little uneasy, if you make your monthly payments on time, you have nothing to worry about.
If you want to sleep soundly at night and never worry about getting your car repossessed, getting an unsecured loan might be the way to go. Unlike secured loans, there is no collateral attached to this agreement. Because of this, interest rates are much higher and the application requirements for unsecured loans are much stricter to ensure that borrowers can be trusted to make payments.
In the off chance that the borrower can’t keep up or decides to go AWOL, unsecured lenders will send a collections agency to help recoup their losses.
What Is Car Repossession?
When the borrower is unable to keep up with their monthly car loan payments, secured car loan lenders have the right to repossess your car. In most cases, this is done through involuntary repossession, where the lender sends a repo company to your home to collect your vehicle. When this happens, it’s best the car owner follow up with the lender as they’ll typically have to fit the bill for towing costs.
Voluntary repossession is another option, which is when the car owner voluntarily returns their car back to the lender. Besides potentially saving money on towing costs, there are no other benefits to this. Voluntarily returning your car does not improve your credit score or increase your chances of getting your vehicle back.
Once your car has been repossessed, the lender will then put it up for auction to try and recover the money you couldn’t pay them. In some cases, the amount that it’s sold at auction isn’t enough to cover the cost of what you owe — in which case the responsibility falls back on the borrower to fit the bill for that difference. Because of this, it’s very important for borrowers to follow up with lenders to make sure there is no outstanding balance under your name. If there is and it goes unpaid for an extended period of time, your credit score will take an additional hit.
It’s important to keep in mind that cars immediately lose 10% of their value as soon as it leaves the car dealership. So if it gets repossessed and goes up for auction, it’s unlikely it will be sold at full price again. With that said, if you feel your car was sold severely under market value, you can dispute that claim to reduce the amount of money you owe.
Pro tip: Know your rights! In stressful situations like this, it’s easy to get emotional and caught up in the moment of it all. While your lender or repo agency has the right to repossess your car, they do not own any of the items that are left inside. Whether it’s your spare pair of Nike sneakers you keep in the trunk or any other personal belongings — you have the right to get those back.
In addition to your belongings, it’s important to know that your property cannot be damaged while your car is getting repossessed. While repo companies have the right to tow away your car straight off the driveway, they cannot break into your garage or property, or damage it in any way. If you personally feel like your rights have been violated in any way, be sure to contact the lender to report the issue to there’s a track record of the incident and consult a lawyer.
Can You Get Your Car Back If It Gets Repossessed?
If your car gets repossessed, thankfully you’re not out of options — in fact, there’s still a chance you can get your car back! While the history will still affect your credit score regardless, at least you’ll have your wheels back! Here’s how you can recover your car:
Pay Your Loan In Full
If you make it in time before your car goes to auction, offer to pay your loan in full. If you offer to do this as well as pay for all the repossession costs, your lender will be inclined to pass the car back. If you’re struggling financially and don’t have the funds to offer up such a large sum of money at once, turn to friends and family if you’re able to. Start with the “bank of Mom and Dad” or go to a trusted friend or family member who can offer that financial support.
When you borrow money from someone that’s close to you, it’s less likely you’ll have to pay interest on top of what you owe them, ultimately saving you some money. With that said, when you do approach them — go in with a repayment plan in place so they see you’re serious about paying them back. If they see that you’ve put thoughtful planning into it, they may be more inclined to help.
Offer A Repayment Plan
If paying the loan upfront simply isn’t an option for you, put together a repayment plan. Sit down and figure out all the expenses you have each month and compare it to how much money you have coming in. Based on that, figure out how much money you can comfortably pay going forward. When you come up with a number that you’re comfortable with, call your lender and present your payment plan to them. Explain your situation and request to have your payment plan modified to cater to your current financial situation. Often times, lenders will be able to accomodate.
File For Bankruptcy
If you’re extremely behind on your payments with no solutions in sight — you might want to declare bankruptcy. It’s not ideal but if you’re able to file before your car gets repossessed, there’s a good chance you’ll be able to keep it — especially if you’re able to come up with some sort of payment plan ahead of time. Before you move ahead with this option, make sure you consult a personal finance expert first to make sure there’s no alternative solutions for you.
If you ever find yourself in a situation where your car gets repossessed — once the waters have calmed down, here are three crucial next steps you have to take:
Check Your Credit Score
Even if you manage to get your car back, if your car gets repossessed — your credit score is going to take a big hit. As soon as things have settled, it’s a good idea to check your credit score and see just how much work it needs to get back to a good standing again. Once you know your status, put together a financial game plan for yourself to try and repair it.
While it’s normal for our credit score to take a tumble once or twice (life happens!), it’s always important to bounce back. Pay back all your payments on time going forward and once you’ve gotten a handle on things, start diversifying your credit accounts for your score to go up even higher.
Learn Your Lesson
No matter how much we plan ahead or try to prevent certain things from happening — sometimes we’re dealt an unlucky hand. The best thing to do in these situations is just learn from them. Try and pinpoint where you went wrong or maybe didn’t handle the situation as best as you could have and see how you can approach it differently moving forward. While it may be hard not to feel embarrassed or defeated from a situation like this, keep your head up.
If your car does get repossessed, your shot at owning a car isn’t gone forever. While it may be more difficult to get a car loan approved by more traditional lenders in the future, look into alternative options like Hamilton Bad Credit Car Loans. No matter how bad your credit or financial history is, they believe everyone should have the opportunity to own a car. They’ll work with you to find a car loan within your budget so you can pay off your car and repair your credit score at the same time. So no matter what financial mishaps happened in the past, the future still looks bright!