Driving your newly purchased vehicle home may be a dream come true, but it comes with some sobering realizations. The truth of the matter is that purchasing a car is a long-term commitment that will affect your finances for a few years. This is a responsibility that you need to keep up with until you are able to repay your car loan in full. If you fail to do so for any reason—be it the downturn of the economy or a medical emergency in the family—then you’ll have to consider the possibility of defaulting on your car payments. This means that the bank may repossess the vehicle that you bought using the car loan.
How Does Repossession Take Place?
Getting your car repossessed does not happen overnight, and it often takes more than one late payment. The process varies from bank to bank and is determined by the terms agreed upon by the lender and borrower. Most lenders have a 90-day grace period for non-payment before the loan is considered to have defaulted. After this period, the lender has the right to repossess the vehicle.
The repossessed cars Philippines banks collect or those that have been voluntarily surrendered by their owners are then put up for sale. The profits from the sale enable the bank to recover the amount that it has released for the original car loan. But what about the borrower who defaulted on the loan?
There are significant consequences that come with repossession. Of course, losing your daily transportation can be a significant source of stress, but its impact extends beyond that. Defaulting on a loan has a significant negative impact on your credit score, and this can hurt you in the long run. The higher your credit score is, the more likely it is that your loan will be approved by a lender, and the flip side holds true as well. Having dealt with repossession can negatively affect your perceived creditworthiness, which can then make it more difficult for you to secure a loan in the future.
Securing Loans after Dealing with Repossession
Getting your car repossessed has consequences, but this doesn’t mean that there’s no coming back from such a situation. Losing your vehicle in this way doesn’t mean that you lose all future opportunities to apply for and get loan approval. The good news is that people who have gone through repossession can still recover from this ordeal, and so can their credit scores. It’s an uphill battle, but there are still ways to improve your chances of getting loan approval in the future. Here are 4 steps you can take to repair your reputation as a borrower:
Get the Advice of a Financial Expert
Seeking the assistance of a financial expert is the best way to get financial advice that is tailored to your particular situation. This applies whether you want to avoid defaulting on your car loan or if you want to fast-track the recovery of your credit score. If you don’t know where to start, you can begin your search for a financial adviser at a bank with which you want to foster a working relationship in the future.
Use Credit Cards Wisely
Credit cards are effective tools for improving your credit score, but you need to have a good sense of financial discipline in order to use this tool correctly. By using your credit card to settle your monthly bills and purchases and paying the full amount on time, you can improve your credit score and show your potential lenders that you’re a trustworthy borrower. To make sure that this strategy works, though, you need to manage your credit cards well and avoid spending more than you can comfortably pay.
Pay Off Your Existing Loans
If you have other loans, slowly but surely pay them on time until you complete the repayment process. This is another effective way of showing your would-be lenders that you have recovered financially, developed good spending habits, and can be trusted with a loan again.
Avoid Unfavorable Loans
A low credit score can prevent you from getting loan approval or the best possible interest rates from a lender. This might limit your financial resources, so you might be tempted to resort to getting the first loan product that comes your way. Despite having limited options, don’t let yourself be cornered into choosing a loan that neither suits your needs nor offers unfavorable fees and interest rates. Instead, make an effort to shop for the best loan program for your purpose.
Having to deal with repossession is not the end of the world. While it can certainly set back your finances and credit score for some time, you can always make an effort to help your credit score recover and improve your chances of getting loan approvals. Try the tips mentioned above to help you get started.
