If the coronavirus has left you without income, you may be able to find loan relief.
What is repossession?
Repossession is the term used to describe the taking back of property after a borrower has defaulted on payments. The lender either repossesses the collateral or pays a third-party service to do so.
There are two types of loans: unsecured and secured. While an unsecured personal loan allows you to borrow money without providing collateral, a secured loan requires some kind of security — an assurance that you will pay.
When you take out a loan on a car, the lender knows that if you fail to make your monthly payments, it can repossess the automobile and sell it to mitigate the loss.
You probably promised three things when you signed loan papers:
- You would pay the loan back.
- If you failed to pay the loan back, the lender had the right to take the vehicle and sell it.
- If the automobile was not worth enough to pay off the entirety of your debt, you would still owe what was left.
Auto repossession stays your credit report for seven years. That clock begins running on the original date of delinquency. While it can negatively impact your credit throughout those seven years, the impact can lessen over time, particularly if you have managed to improve your credit history as you prove that you are pay your bills on time.
In other words, a repossession that looks like an anomaly will impact you less than a repossession that appears to be part of a pattern.
Before you simply stop making payments on your car loan, check with your lender. If you have experienced a layoff or other hardship, let your lender know. It is possible it will help you by altering your original agreement or extending your loan.
To be sure, what the lender really wants is the vehicle to be paid off in full, something that is unlikely to happen if your collateral is repossessed and sold.
So how can you avoid repossession? Read more here.