YOU ASK:

What is the effect of a repossession on my auto insurance rates?

WE ANSWER:

Since credit rating is one of the things that insurance companies look into when setting your premiums, a repossession due to non-payment of amortizations on your car will negatively affect your auto insurance rates.

When your car is repossessed, this will considerably lower of your credit rating and subsequently, increase your car insurance rates. This is regardless of whether you have a good claims history or are insuring a different car than the one that was repossessed.

Credit Ratings as a Basis for Insurance Premiums

You may wonder how credit rating is connected with your auto insurance premiums. Well, please remember that auto insurance (like all other insurance) is about providing protection against risk and the insurance company would like to assess the risk that you present before they will agree to provide you with insurance coverage.

One's credit ratings give an indication of the kind of risk a person presents. The belief is that if you are conscientious about money and handling it, you will be also conscientious about your car and how you drive it.

Those with good credit ratings tend to:

  • Drive carefully
  • Carefully consider who uses their car
  • Take proper maintenance and safety measures for their car

On the other hand, those who have poor credit ratings have the tendency to make unnecessary claims or to inflate whatever claims they make. Let us just clarify that this is according to the experience of the insurance industry.

What happens to your credit rating?

Starting from your first missed payment, your credit report will already take a hit. When you first miss your car payment, this will reflect in your credit report, causing your rating to drop by as much as 50 points. Then further missed payments will continue to decrease your ratings until your car is repossessed. If there are other records of missed payments for other loans, this will further decrease your credit rating.

In addition, when your car is repossessed, this will be recorded in your credit report.

Fix Your Credit Rating

That is why it is important for you to fix your credit rating after a heavy blow such as a repossession.

It may take 7 years before a repossession is stricken from your publicly available records. You must make sure that the bank or credit institution that granted you the car loan send a request that your record of repossession be removed from the credit bureaus' records.

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