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What does a vehicle repossession do to my credit report?

If you stop making your car payments, your vehicle will eventually get repossessed. This will involve a repossession agent employed by your lender coming to your home, hooking your car up to a tow truck and taking it away.

It is your lender's legal right to repossess your vehicle if your loan goes into default, but knowing this certainly doesn't make the experience any easier. You will lose your mode of transportation and whatever value you own in the car, and you will also incur other stiff penalties and fines -- not to mention the effect of a vehicle repossession on your credit report.

How will a repossession affect my credit rating?

Repossession will certainly have a negative effect on your credit rating in several ways. First, the repossession itself will hurt your credit score. Second, the repossession will show up on the public record area of your credit report. Third, if your lender succeeds in securing a deficiency judgment regarding the amount of money you still owe, this judgment will also show up on your credit report.

These negative events will follow you on your credit report for the next seven years. However, as more time passes, the negative impacts will become weaker and weaker.

What about avoiding vehicle repossession?

There are some ways to avoid repossession. Perhaps the most direct way is to simply catch back up on the payments you owe, which you might be able to do with some strict financial planning or with the help and assistance of a family member or friend. Another way to avoid repossession is to refinance.

With a newly refinanced loan, you might be able to afford your monthly loan payment obligation by spreading out your repayment period over a longer time and by lowering the interest rates that apply to your account. It's always best to apply for a refinance loan as soon as possible, and before you start running the risk of missing a debt payment.

Another potential solution is bankruptcy. By filing for bankruptcy, a vehicle owner may be able to put the collection efforts of his or her lender on hold to prevent or delay the vehicle repossession process.

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