What is a repossession?
A Repossession (Repo) refers to a financial institution (Bank) taking back an object that was used as collateral in a loan. A repossession is an action in which the party having the right of ownership (Bank) of the property in question (Vehicle), takes the property back from the party which has the right of possession (Consumer). The property is then sold by the financial institution (Bank).
Types of Auto Repossessions
There are two types of repossessions: voluntary and involuntary. A voluntary repossession is when the borrower voluntarily gives the car back to the lender. An involuntary repossession is when the lender has the car repossessed without the borrower’s consent. Both types of repossessions negatively impact the credit score.
Outstanding Loan Balance After a Vehicle Repossession
When a vehicle is repossessed, the lender sells the car at an auction to try and recover as much money as possible. Unfortunately, cars do not sell for a lot of money at auctions, and this may leave the borrower still owing a substantial amount of money on a vehicle he no longer has. The borrower is still responsible for paying off any remaining balance owed to the lender. The balance owed is reported as an outstanding debt on the borrower’s credit report. If a borrower owes an outstanding balance after a repossession and does not pay it off, the lender may sue the borrower in court. If the lender wins, a judgement will be placed against the borrower, cementing a legal obligation to repay the debt.
How long does a Repo stay on your credit report?
A repossession may report on your credit file for up to 7 years from the date the repossession occurred.
How does a Repossession impact a credit report?
A repossession impacts your credit report in several ways. First, the lender reports late payments on your account. Late payments of 30, 60, 90 days past due all have escalating negative effects on a credit score. Then, the actual notation of the repossession will do the most damage, as it will show that you had defaulted on a debt obligation. If there is an outstanding balance, it will be reported as past due, doing even more damage. Furthermore, the lender may decide to sell the outstanding debt to an outside collection agency, which will report the debt as a new collection account. Finally, the lender or collection agency may decide to sue you and place a court judgement against you for the balance due. The judgement will report on your credit file as well crushing your credit score to the point where obtaining a new loan may become impossible.
What to do if you have a repossession on your credit report?
Credit Firm has helped thousands of clients delete Repossession accounts from credit reports. If you have a repo or an account reported as repossessed on your credit report, contact Credit Firm to fix your credit and improve your credit score.