Falling on hard times is an unfortunate part of life for many people. Unfortunately, the choice between choosing to put food on the table, pay the utilities, or making car payments often means that you’ll suffer the consequences of being unable to pay for everything. At a certain point, if you default on your car loan, your vehicle will be repossessed. This can seem bad enough, but it can have an impact on your car insurance in addition.
The Repo Process
The repossession of your car isn’t an overnight process. It takes time, and usually multiple attempts by your lender to contact you and work things out. After all, your lender makes money off of you making your payments. They don’t have as much use for the car itself. It requires more work on their part to send you notices that you’re overdue on payments, contact a repossession company, pay them to bring them your car, hold it, and sell it to someone else. Once the process has started, it’s usually just a matter of time before you lose your car. Repossession services are motivated to find you and return your car to your lender when you default on your auto loan payments. The greater their success rate, the better off they are.
Repossession Hurts Your Credit Score
Defaulting on a loan sends a signal to lenders that you are a greater risk to lend to. Because having your vehicle repossessed typically means you defaulted on a loan, it can hurt your credit score. Just missing a single payment can significantly lower your score. Defaulting is much worse. Remember, your payment history is the most impactful component of your credit score. When your payment history suffers, so does your score.
What You Can Do About It
Your credit score is one of the factors auto insurance companies look at when deciding what coverage to offer you. They use it to try to figure out how much of a risk you are to them. The idea is that the better your score, the less likely you are to file an expensive claim they’ll have to pay out on. If you have a bad score, expect to pay a higher premium. In the case of a loan default, often the only thing you can really do is wait for it to drop off your credit report. In the meantime, do everything you can to make sure that you have an otherwise perfect payment history. Be careful about how you use your credit accounts and keep existing ones open if you can.
Having a car repossessed can be embarrassing and tends to make life more difficult to manage. It has an impact on your car insurance, which can result in you paying more for your policy for any other vehicles you have. If you’ve had a car repossessed, take steps to repair your credit score and prevent it from happening again in the future.
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