How to Refinance a Repossessed Car

If your car is repossessed, or taken back by your lender, you’re likely facing financial difficulties that can make it a challenge to get the vehicle back and refinanced into a loan you can afford. Increase your odds for success by being prepared to get current on back payments and explain to a potential lender why you’re a good credit risk the second time around.

Depending on your auto loan structure, you may be considered in default and subject to repossession if you miss even a single payment. Realistically, most lenders understand it’s easy to get behind on a payment or two and are usually willing to work with you if you’re facing temporary financial problems. If you fail to pay your auto loan for several consecutive months or fail to return calls and communicate with your lender, you may wake up one morning and find your car missing from your driveway. You’ll usually get a letter from the lender after the fact that explains your options, or you can call the lender right away and start the discussion.

To get your car back, you’ll likely have to get current on all back payments and pay costs associated with having your car repossessed, towed and stored by a repo company. If you’ve been habitually late or delinquent, your lender may not give you the option at all. In that case, your car will be sold at auction and you’ll be responsible for paying the difference between the outstanding loan balance on the vehicle and what the car sells for. For example, if you owe $5,000 on an auto loan and the repo company sells your vehicle for $2,000, you’ll still owe the lender $3,000.

Some lenders may be willing to work with you to get you into a new loan, but you’re likely to find yourself in a Catch-22. If you missed so many loan payments that your car was repossessed, chances are your credit score has taken a hit. Even if you can get refinanced, you’re probably looking at an interest rate that’s higher than what you had before. If the loan length is extended or you’re able to put money down, it can improve your odds of success. Trying to refinance a car that’s upside down, or worth less than what you owe, will be challenging.

If the lender that repossessed your car isn’t willing to refinance your loan, talk to your personal bank or credit union about funding options. Also consider getting a co-signer, such as a friend or relative with good credit who is willing to put her name on your loan. You may also find bad credit auto loan companies in your area, but beware of lenders that prey on people with credit and financial problems. You could face a scam or excessively high rates and fees that will only worsen your credit picture.