When your car is repossessed (repo’d) it will get sold at auction to help make back the loss for the bank. If it gets sold for more than you owe you’re a lot better off than if it gets sold for less. Sold for less means you still owe the difference.
Lenders like to know that your loans eventually get repaid, and they’ll be looking for proof. Once the account is settled, you can show this by obtaining a “letter of satisfaction” from your previous lender. It tells potential new creditors that, despite your low credit score, your vehicle loan was paid in full after the repossession.
Improving your credit score takes time and effort but is well worth it. The taint of a vehicle repo and other negative information will fade as you add new, positive information to your credit history.
Here are some options you can try to help rebuild your score.
Check out secured credit cards. I recommend Capitol One and Orchard Bank.
Find the card with the best terms for what you need, and be sure the issuer reports the account to all three major credit bureaus.
If you have a family member who pays his or her credit card debt on time, ask to be added as an authorized user on the account. This would add positive information to your credit history, even if you don’t use the card.
Lastly, open a savings account at a bank or credit union and ask for a low-risk “passbook” loan, which uses the balance on the savings account as collateral. Again, be sure this gets reported to the credit bureaus.
When you purchase another car, take your letter of satisfaction from your previous car loan to the dealership and explain your situation. Credit unions tend to be more forgiving of a repo and other credit mistakes than banks, especially if you have the payment taken directly out of your account.