Getting a Car Loan with a Charge-Off on Your Credit Report

A charge-off is listed on your credit reports once a creditor decides it’s uncollectable, and it remains there for up to seven years from the date of the first missed payment. Charge-offs are viewed negatively by lenders; however, just because you have a charge-off on your credit reports doesn’t mean you can’t get a car loan.

Types of Lenders to Work with after a Charge-Off

Getting a Car Loan with a Charge-Off on Your Credit ReportThe first thing you should do – regardless of whether or not there’s a charge-off on your reports – is to try for a pre-approval with your bank or credit union.

Although this might not be easy since your credit score is lower, it’s possible to get pre-approved for an auto loan if you’ve maintained an account in good standing with your lender.

If you’re unable to get pre-approved, your next step is to find a lender that can work with unique credit situations. We can help you with that, but first you should know who these lenders are:

  1. Subprime lenders – These lenders work through special finance dealerships, and specialize in bad credit car loans. Subprime lenders run credit checks, but consider outside factors such as your income, employment, down payment, and residence stability. Taking out one of these auto loans gives you a chance to build or rebuild credit.
  2. Buy here pay here dealers – Buy here pay here (BHPH) dealerships – also called tote the note dealers – are in-house financiers, and are both the lenders and dealerships. These one-stop shops make it easy to buy and finance a vehicle; plus, BHPH dealers typically don’t run credit checks, and approvals are based on income and down payment. However, because most don’t check credit, it also means they may not report on-time payments to the credit bureaus, so you wouldn’t be able to improve your credit score with a BHPH car loan.

With both types of lenders, you can expect to get approved at a higher than average interest rate, as well. Bad credit car buyers tend to see APRs in the double digits, and this increases the overall cost of the loan. But you can lower the cost by making a sizable down payment.

Handling a Charge-Off on Your Credit Reports

It’s true that a charge-off means your creditor can’t come after you to pay them back, but that doesn’t mean you can just stop paying altogether. You should pay back what you owe, and there are three ways you can handle this with a charge-off:

  1. Pay back the lender – If the debt hasn’t been sold to a collection agency, you can simply pay back the lender. Once the charge-off is paid, make sure the account’s status has a balance of zero, and the status is changed on your credit reports to “paid charge-off.”
  2. Pay the collection agency – If your debt was sold to a collection agency, you can pay them. Similar to paying the lender, make sure that the collection on your credit reports is changed to “paid collection.”
  3. Settle the debt – The last option is to settle the debt with the lender or collection agency to a lower amount than the balance owed. With this, the charge-off should be listed on your credit report as “settled charge-off” once it’s been paid under an agreement.

Ready to Find a Dealership to Work With?

It’s important that you pay your debts, even if they've been charged-off. If you find yourself needing a new vehicle while you’re dealing with a charge-off, don’t worry about hunting for a dealership to work with – we can do the searching for you.

At The Car Connection, we work with a nationwide network of special finance dealers that have the lenders you're looking for. Simply fill out our easy, fast, and free auto loan request form, and we'll get to work matching you with a dealership in your area. Get started today!

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