A car repossession is a situation you want to avoid at all costs. Although some people allow voluntary repossessions, the peace of mind they think they’ll gain is short-lived and there’s nothing to gain from getting a car (or anything) repossessed.

So if you’re facing a repo or feel that it’s a possibility, read up on their consequences and how you can avoid it. Doing so will safeguard your financial health for the future.

Effects Of a Repo On Credit

The major problem with a repossession is not just the inconvenience or embarrassment, it’s the damage it does to your credit and reputation. To put it plainly, credit bureaus see repossessions as highly unfavourable and view individuals with repossessions on their records as high-risk individuals. That brings on some other consequences as well.

Troubles Of a Repo On Your Credit Profile

• Stained credit for seven years – In a similar vein to late payments and bankruptcies, a repossession will spend at least seven years on your credit profile.
• Difficulty qualifying for loans due to damaged credit – Repossessions can result in significant credit score drops and can signal to a lender that you are a high-risk client. This will make it difficult to qualify for a loan in the future or a for prime rates (may only qualify for subprime loans).
• Court judgements and suits from collection agencies – A more serious consequence or repossessions is a court judgement, which can lead to a collections agency suing you. This is double punishment so to speak – you have to repay the money you owe, and the court judgement will also appear on your credit profile.

As you can see, a repossession is nothing to take lightly. It may seem like the only way out if you’re facing serious financial hardships, but the long-term consequences simply aren’t worth the trouble.

What You Should Do If You’re Facing a Repo

There’s a sense of doom that many face with a looming repossession, but there are options and means of side-stepping one. Much of it depends on honest communication and the willingness to restructure your financial picture. If you’re willing to take those steps, you may see that a repossession doesn’t need to take place.

Dodging the Repo Man

• Make payment arrangements with the lender – The first and perhaps most challenging (yet necessary) step to take is to make arrangements with your lender. There’s a misconception that lenders are robotic, inflexible people who aren’t willing to work with their clients. That’s untrue. They can often setup arrangements in the form of payment deferments, extensions and rescheduling of payment dates to better align with one’s paycheck.
• One-time loan payment – A loan deferment is one example of how lenders can help you make your payments. A deferment basically allows you to push a missed payment to the end of the loan term, and you’ll only have to pay interest fees for the current month. In the odd case, a lender may even waive a late payment as long as you make the effort to communicate your difficulties with them.
• Refinancing – Depending on your situation, you may be in a position where you can refinance your loan. This is not an option for everyone, but you may be able to extend the loan and decrease your monthly payments to make them more affordable. There is a caveat to this however – stretching out your loan term means you will pay more interest over time and more in total due to depreciating car value (negative equity).
• Downsizing – Ultimately, if you find that you just can’t keep up with your payments, then the best option may be to give sell your car. Holding onto a possession you can’t afford is a losing strategy no matter how you look at it. So instead of living through anxiety and financial turmoil, you can downsize your car for a more affordable option while avoiding a repossession.

The Consequences Of a Repo Are Long-Lasting

Remember, a repossession is not your saving grace or lifeline. They do far more damage than good, and it’s in your best interest to avoid one at all costs. Even though a voluntary repossession may give you a sense of relief, it’s just a temporary escape from long-lasting credit woes down the road.

So it’s better to consider ways to avoid a repossession altogether. First and foremost, start a dialogue with your lender. They can arrangements your payments into a more affordable structure. If these options aren’t available to you, consider downsizing to a more affordable vehicle.

Taking these steps will not only benefit your finances in the short-run, but more importantly, your credit health in the future.