A repossession on your credit report will damage your credit score. It may cause you to be denied a car loan, home loan, and even credit card offers. A car repossession will be on your credit report for seven years. Its effect reduces with time but if it is there, it will affect your score negatively. Repossession occurs when you default an auto loan.
You are usually required to make monthly payments. Until you pay the loan in full, the bank that gave you the loan owns the car. If you fail to make the payments, the bank has a right to take back the car. The creditor can take the car anytime as long as you have defaulted on the loan. In some states, the law does not require them to notify you before they repossess the car. They take it and try to resell it to get back their money.
It does not make any difference whether you voluntarily surrender the car, or they take it. The implications on your credit score are the same. Even after repossessing the vehicle, the bank can decide to sue you for the remaining amount. For instance, assume you owe $15000 for a car and it gets repossessed. If the creditor sells it for $10000, they might sue you for the additional $5000. If they sue you, there will be a judgment on your credit report—which makes things even worse for you. You do not have to wait seven years to have a repo removed from your credit report.
There are two things that you can do. First, you can get the bank to agree to a renegotiation of payment terms. If they accept the new terms, they can remove the repo from your report. If they agree to remove it, make sure the agreement is in writing. Second, you can dispute the repossession account. If the creditor fails to verify your repossession or does not reply to your dispute within 30 days, you can get it dropped from your report. If you doubt your ability to file and follow through with a dispute, seek help from a professional credit repair company.
It is possible to get a car loan if you have the repossession removed from your credit report. It will be difficult to get financing for a car with the repossession still on your report. If a creditor agrees to finance you, they will charge you very high interest rates and you end up paying way more than the car is worth.