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Getting a Car Loan After a Repossession

Getting a Car Loan After a Repossession

Losing your vehicle to a repossession can be an extremely stressful and frustrating life event. Not only have you suddenly lost your primary mode of transportation, but your credit score has also taken a major hit that will impact your finances for years to come. However, the situation is not hopeless. With the right strategies and some diligence, you can get back on the road again in a new car, even after a repossession.


This comprehensive guide will walk you through your various options for purchasing another vehicle after a repossession. We’ll provide tips on improving your credit, finding alternative financing, and negotiating the best possible deal. We’ll also share expert advice on how to protect your next car investment so you can avoid another repossession down the road.


While recovering from a repo takes time and effort, implementing a step-by-step game plan using the strategies outlined here will put you back in the driver’s seat and headed toward rebuilding your credit.

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What to Do Immediately After the Repossession

Getting your vehicle repossessed can be an extremely stressful and chaotic experience. Your first instincts may be to panic or get angry. But it’s important to remain calm and take immediate action to protect your rights and minimize further damage.

Here are some critical steps to take right after your car is repossessed:

 

Contact Your Lender

Get in touch with your lender or loan servicer as soon as possible. Inquire about the total reinstatement amount – this is the balance you would need to repay to get your vehicle back. Reinstatement costs typically include the remaining loan principal, any late fees or penalties, repossession fees, storage fees and applicable taxes.

Ask for a detailed breakdown in writing and clarify the lender’s policies around repossession and reinstatement. This will empower you to make an informed decision on whether to redeem your car or not.

 

Understand the Repossession Process

Research your state’s laws around repossession and consumer protections. Most states prohibit unreasonable repossession practices – such as breaching the peace, entering locked garages, using false pretense, etc. Any violations could potentially invalidate the repossession.

Review all the loan and repossession paperwork for errors. Confirm the lender followed proper protocols in repossessing your vehicle. Knowing your rights can help you identify any basis to dispute or challenge the repossession if needed.

 

Avoid Further Credit Damage

A repossession already hurts your credit substantially. But you can minimize additional harm by continuing to make payments on any other outstanding debts. If you default on multiple accounts, it can spiral your credit score into very poor territory.

Avoid charging up credit cards or taking out new loans just to get by. With some discipline and budgeting, you can get through this difficult period without worsening your credit situation.

 

Waiting Periods Before Getting Another Car

After having your vehicle repossessed, most traditional lenders will want you to wait at least 12 months before they consider approving you for auto financing again. This waiting period allows some time for the negative impact of the repossession to lessen on your credit reports.

During this time, consider saving up to buy an inexpensive used car with cash if possible. While not always ideal, paying cash eliminates the need for financing and extra fees. Having a stable income and sizable down payment ready will also make lenders view you as less risky when you do apply for a loan down the road.

If you need a car right away and don’t have cash on hand, you may have to explore other high interest financing options like “buy-here-pay-here” dealerships. But the interest rates can be exorbitantly high, so this should be a last resort. Be prepared to pay a much higher monthly payment if you finance a car soon after the repossession.

 

Improving Your Credit Score

After a repossession, your credit score will take a big hit. But there are proactive steps you can take to start rebuilding and improving your credit right away:

 

Get copies of your credit reports and dispute any errors

Request free copies of your credit reports from Equifax, TransUnion and Experian. Review them closely and dispute any inaccurate, outdated or fraudulent information. This can help remove negative items that shouldn’t be on your reports.

 

Pay all current debts on time going forward

The quickest way to rebuild credit is to make all your payments on time from now on. Set up automatic payments or payment reminders if needed. Even one late payment can further damage your score.

 

Become an authorized user on someone else’s account

Ask a family member with good credit to add you as an authorized user on one of their longest open credit cards. Their on-time payments will start to positively impact your credit.

 

Apply for a secured credit card and use responsibly

Secured cards require a cash deposit that acts as your credit limit. Use the card for small purchases and pay it off each month. This demonstrates responsible usage that helps improve your score over time.

 

Finding a Lender Willing to Finance You

After a repossession, your options for financing will be limited. Most mainstream lenders will likely deny your application for at least 12 months after the repossession. However, here are some options to explore:

 

Check with Local Credit Unions and Smaller Banks

Smaller financial institutions like credit unions and community banks are often more willing to work with borrowers with poor credit. They have more flexibility than large national banks and may be able to approve you despite the repossession. Look for local options in your area.

 

Explore Special Financing Programs for Bad Credit

Some lenders offer special financing programs designed for people with past credit problems. This type of financing is more readily available from “buy here pay here” dealerships and subprime lenders. Rates are higher but they will overlook the repossession.

 

Consider a Co-Signer to Get Better Loan Terms

Adding a co-signer with good credit will make lenders more confident in approving your application. The co-signer will share legal responsibility for the loan, but it can help you qualify and get lower interest rates.

 

Strategies to Get the Best Possible Rate

After a repossession, your credit score will take a hit, likely making you a subprime borrower. This means you’ll pay much higher interest rates, potentially between 15-25%. However, there are a few strategies you can use to get the most favorable rate possible:

 

Shop Around for Quotes

Don’t just go with the first lender that approves you. Take the time to get rate quotes from at least 3-5 lenders. This includes banks, credit unions, and online lenders. You may find certain lenders are more willing to work with subprime borrowers and offer better rates.

 

Put Down a Sizeable Down Payment

Try to put down at least 10% of the vehicle’s value as a down payment. This shows lenders you are financially committed and have “skin in the game”. The higher the down payment, the lower risk you are to the lender.

 

Enroll in Credit Counseling

Many nonprofit credit counseling agencies have programs to help people in financial hardship. They can often negotiate lower interest rates on your behalf. Completing a debt management program also demonstrates you’re proactively fixing your finances.

 

What Interest Rates to Expect After a Repossession

After having your vehicle repossessed, you should expect much higher interest rates when applying for your next auto loan, typically in the range of 15-25%. Lenders view borrowers with a recent repossession as high-risk, so you will pay a premium rate to compensate the lender for taking a chance on you.

The good news is that your interest rate will steadily improve each year as you actively rebuild your credit. As you make on-time payments, keep your credit utilization low, and allow time to pass, your credit score will gradually recover. Most people see their rates decrease around 2-3% per year after a repossession as long as they practice good credit habits. Within 3-4 years of dedication to credit repair, you could potentially qualify for more reasonable interest rates under 10%.

When rate shopping, aim for the lowest rate possible, even if it is still in the 15-20% range initially. This will save you money over the life of the loan. You can always refinance down the road when your credit strengthens. With some time and diligent effort, a prior repossession does not have to haunt your interest rates forever.

 

Protecting Your Investment in Your Next Car

After going through the difficult experience of having your vehicle repossessed, it’s crucial to take steps to protect your investment when financing your next car.

 

Get GAP Insurance

One of the best ways to safeguard against another repossession is to purchase GAP (Guaranteed Asset Protection) insurance. This coverage pays the difference between what your car is worth and what you still owe on your loan if your vehicle is totaled or stolen. That way you avoid being upside down on the loan, which is often what leads to default and repossession.

 

Build Emergency Savings

Having cash reserves is vital for anyone, but especially if your credit is damaged. Building even a small emergency fund of $500-1000 will help you get through financial hurdles like job loss or medical bills that could otherwise result in missed payments. Automatic monthly transfers from checking to savings works well.

 

Refinance When Your Credit Improves

An unfortunate reality after a repossession is that you’ll likely pay sky-high interest rates at first. But as you diligently repay your loan on time, your credit score will start to rebound. Once you reach the point of having “fair” credit, you may qualify to refinance your loan to a much lower interest rate, potentially saving you thousands.

 

How Repossession Impacts Your Credit

Having your vehicle repossessed can severely damage your credit score. Most people see their scores drop by 100 points or more after a repossession. This is because repossession is considered a derogatory mark on your credit report.

This derogatory mark will stay on your credit report for 7 years from the date of your first missed payment that led to the repossession. Having this negative item on your report makes it extremely difficult to qualify for new loans or credit cards.

Lenders view applicants with a recent repossession as high risk. You may get denied for auto loans, mortgages, personal loans, and other credit products. Even if you do get approved, expect to pay much higher interest rates compared to applicants with good credit.

A repossession signals to lenders that you have failed to repay a major debt obligation. It raises doubts about your ability to manage credit responsibly. Therefore, a repossession will make everything from renting an apartment to getting utilities and insurance more challenging and expensive.

The repossession will dominate your credit report and score during the 7 years it remains. But the impact lessens each year, as long as you rebuild credit by making on-time payments. With diligence, you can recover and qualify for financing again in the future.

 

Redeeming Your Repossessed Car

One option to get your repossessed car back is by redeeming it. Redeeming a car means paying off the entire remaining loan balance, plus any additional fees and costs associated with the repossession. This allows you to recover the vehicle before the lender auctions or sells it.

To redeem your repossessed car, you’ll need to act quickly and contact the lender immediately after the repossession occurs. Ask them for a written quote detailing the exact redemption amount owed. This redemption amount will likely include:

 

  • The remaining principal on the loan
  • Any late fees or penalties
  • Interest accrued since defaulting
  • Repossession fees like towing/storage
  • Legal fees if the lender got lawyers involved

 

You may be surprised at how quickly redemption costs can add up. Paying off the balance alone is often thousands of dollars. Then repossession fees like towing and storage can easily be $500 or more. Legal fees can also run $1,000 or higher if the lender filed a lawsuit related to the default.

The good news is that if you can come up with the full redemption amount within a short window, you can recover your vehicle. But you need to act fast, as the lender will proceed with selling the car once they legally can – usually within 30 days of repossessing it. So arrange financing or tap your savings ASAP if you want to redeem your repossessed vehicle.

 

Reinstating Your Auto Loan

One option after a repossession is to get your original auto loan reinstated with the lender. This involves contacting the lender and requesting a reinstatement quote. To get the loan reinstated, you’ll need to pay the missed payments, repossession fees, storage fees, and any other charges that are owed.

The goal of reinstatement is to get your loan current again and resume making your regular monthly payments. Essentially, it’s as if the repossession never happened. The lender may require a lump sum payment to bring the loan up to date. Or they may let you make installment payments over 3-6 months until everything is paid off.

Reinstatement can be a good option if you want to keep your car and already have an established payment history with the lender. But you’ll need to have the financial means to get caught up on the missed payments and fees. Make sure to get the reinstatement quote in writing from the lender before agreeing to anything.

Once reinstated, be diligent about making your monthly payments on time going forward. Any further missed payments could lead the lender to repossess the car again. Stay committed to keeping the loan in good standing.

 

Buying Back Your Car at Auction

One option for getting your repossessed car back is to attend the auction where the lender sells it and bid to buy it back yourself. This allows you to regain ownership of your vehicle, but you’ll need to arrange financing or have enough cash on hand to cover the selling price.

Here are some tips for buying back your car at the repo auction:

 

  • Attend the auction and inspect your car thoroughly beforehand. Look for any new damage or missing parts. Know its current condition and value.
  • Arrange financing in advance if needed. Talk to lenders and have an auto loan pre-approval ready so you’re able to make the purchase.
  • Set your maximum bid limit based on the car’s worth and what you can afford. Don’t get caught overbidding.
  • Bring the proper documentation like a valid ID, proof of insurance, license plate registration, etc.
  • Pay attention to the auction flow and bid competitively. Repo auctions tend to move quickly.
  • Understand all fees and costs involved with buying back the car at auction.
  • Have the payment ready immediately if you win. Auctions require quick payment.

 

Buying back your repossessed vehicle takes coordination and preparation but can help regain your asset. Inspect the car thoroughly, know its value, arrange financing, and bid strategically at the lender’s auction.

 

Using a Cosigner to Get Approved

One strategy to improve your chances of getting approved for a car loan after a repossession is to add a cosigner with good credit. A cosigner agrees to be legally responsible for the loan payments if you can’t make them. This gives the lender more security, so they are often willing to extend financing to riskier applicants who have a cosigner with a strong credit history.

Having a cosigner can help you in a few key ways:

 

  • Get approved when you may not qualify on your own
  • Obtain lower interest rates, saving significantly on financing costs
  • Access better loan terms like longer payment periods
  • Improve your debt-to-income ratio

 

Just make sure the cosigner understands they are equally responsible for making the monthly payments. If payments are missed, it can negatively impact their credit as well. Have an open conversation about expectations before moving forward.

Overall, bringing on a cosigner with excellent credit can greatly improve your chances of securing an auto loan after a repossession. Just be sure to make all your payments on time so you don’t put their credit at risk.

 

Avoiding Another Repossession

Getting your vehicle repossessed can be devastating both financially and emotionally. The good news is there are proactive steps you can take to avoid going through it again:

 

Build an Emergency Fund

One of the best ways to avoid another repossession is to build up a rainy day fund with 3-6 months of living expenses. This gives you a financial cushion so you can continue making loan payments even if you face a job loss, medical emergency, or other crisis.

 

Make Payments on Time Every Month

Staying current on your loan payments is critical. Set payment reminders, automate payments, and budget carefully so you don’t fall behind. Even one missed or late payment can start the repossession process.

 

Communicate with Your Lender

If you do face financial hardship, immediately contact your lender explain the situation. They may offer options like reduced/skipped payments or loan modifications to help you get back on track. The worst thing you can do is ignore calls or letters from the lender if you’re struggling to pay.

With diligence and proactive planning, you can avoid going through another repossession. This takes commitment but is well worth the peace of mind.

 

Conclusion: Summary and Final Tips

Recovering from a car repossession takes time, effort, and patience. But with diligence and proactive strategies, you can get your credit back on track, find alternative financing options, and purchase another vehicle. Use this difficult situation as motivation to build better long-term financial habits.

In summary, focus first on repairing your credit by making all current payments on time, becoming an authorized user, and disputing any errors. Save up cash for a down payment on your next used car. Shop around for financing from multiple lenders like credit unions and smaller banks. Enroll in credit counseling if needed. Purchase GAP insurance to protect your new investment.

With each year that passes, continue rebuilding your credit. Your score will gradually improve, allowing you to refinance at better rates. But most importantly, be sure to learn from this experience. Develop an emergency fund, budget wisely, and borrow only what you can realistically afford to repay. With diligence and patience, you can recover and thrive financially after a repossession.

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Questions About Repo Car Loans

The process of getting another car loan after a repossession in Canada can be challenging but is possible. The first step is to wait at least 6 months to a year before applying for another auto loan. This allows some time for your credit to start recovering. When you do apply, make sure to shop around at banks, credit unions, and special financing dealers to find the best rates. Secured loans, where you put up collateral like a savings account, may offer lower rates. Bringing a cosigner with good credit on your application can also help. Be ready to make a higher down payment as lenders will see you as higher risk. Overall, expect much higher interest rates than a standard auto loan. But with some work, you can get driving again.

There are a few options in Canada for getting your repossessed car back:

 

**Redemption**: Within a certain time period, you can pay off the full remaining loan balance plus all repossession fees to redeem the car. This window is usually 10-30 days.

 

**Reinstatement**: You can negotiate with the lender to reinstate the original loan terms if you become current on payments. There may be associated fees.

 

**Buy at auction**: The lender will auction the car. You can bid on and attempt to buy it back at auction. Research prices ahead of time.

 

**Negotiate with lender**: Especially soon after repossession, a lender may allow you to negotiate affordable repayment terms to get the car back.

Here are the main steps to rebuild your credit after a car repossession in Canada:

 

– Get current on all other existing debts and maintain on-time payments going forward. This responsibly will help offset the negative mark of the repo.

 

– Pay down credit card and revolving debt balances. Owing less money compared to limits will improve credit utilization ratio.

 

– Avoid applying for more credit right away. Too many new applications looks risky.

 

– Wait 12-18 months before applying for a secured credit card or secured loan. This allows time for the worst repo impact to decrease.

 

– Dispute any inaccurate information about the repo with credit bureaus if errors exist on the report. Submit evidence.

 

– Sign up for credit monitoring to track ongoing progress as your score recovers over about 3 years.

There are several options to obtain another used car without financing after a repossession in Canada:

 

– **Save up cash** to buy an inexpensive used car outright without any financing. Sites like AutoTrader and Kijiji often list private sales.

 

– **Borrow money from family or friends** rather than a bank. Offer to sign a loan contract with them.

 

– **Use public transportation** like buses for a while until you can save up enough cash for a vehicle.

 

– **Rent or car share** programs allow short-term access without loans or long-term commitments. Services like Turo or Communauto are available.

 

– **Buy at police auctions** which often have repo and seized vehicles for sale in Canada at big discounts. Research ahead of time on pricing and risks.

 

– **Trade services** to get a used car, such as doing maintenance, repairs, cleaning, etc for a car owner in exchange for their old car.

 

Here are some steps that can help increase the chances of getting approved for another car loan in Canada after a recent repossession:

 

– Wait at least 6 months before applying for the next auto loan

 

– Pay down other debt balances to reduce your overall utilization

 

– Get current and stay current on all other existing accounts

 

– Begin rebuilding your credit by becoming an authorized user on someone else’s credit card

 

– Save up a larger down payment, ideally 20% or more of the total cost

 

– Apply for financing at a dealership that advertises “second chance” financing

 

– Bring proof of higher or more stable income to show lenders

 

– Apply for a secured loan or secured credit card to establish responsible usage

 

– Enlist a creditworthy cosigner with excellent credit to co-sign the loan

When buying from “buy here pay here” dealers in Canada after a repossession, some important things to know include:

 

– Interest rates are typically very high, often over 20% with compounding interest

 

– Down payments tend to be larger, averaging around $2,500 to $4,000 on most vehicles

 

– Additional fees for GPS tracking, processing, etc may be charged adding to total cost

 

– Repossession again is common if just one payment is late, due to internal financing

 

– Vehicle selection tends to be older used cars with over 100k miles or kilometers

 

– Onsite financing approval is convenient but review terms closely before signing

 

Overall, buy here pay here dealers provide loans to higher risk buyers, but the vehicle and loan terms are suboptimal, so review carefully.

In Canada, there are a few options for trying to remove a repossession from your credit bureau records:

 

– **Submit a dispute** – If there are any factual errors in the repo reporting, submit dispute letters to the credit bureaus along with evidence to correct the reports.

 

– **Negotiate with lender** – Contact the original lender that reported the repossession to inquire if they would consider requesting its removal from the credit bureaus after a period of on-time payments.

 

– **Wait out the 6-7 year period** – Repos typically fall off your Equifax and TransUnion credit reports automatically after 6-7 years from the date of first delinquency.

 

– **Apply for a “goodwill removal”** – Some lenders may agree to request deletion as a goodwill gesture if you’ve re-established positive payment history. They are not obligated to.

Here are some of the most effective tips for negotiating with an auto lender after a repossession in Canada:

 

– Contact the lender immediately to show willingness to cooperate and potentially reinstate

 

– Research the vehicle’s current resale value so you can make realistic offers if buying it back

 

– Gather documentation of income/expenses to request affordable monthly payments

 

– Ask about waiver of some fees or attorney’s costs to lower the payout balance

 

– Offer a reasonable lump sum payment upfront if possible, followed by regular installments

 

– Remain calm, honest and solution-oriented throughout the discussions with the lender

 

– If talks break down, be proactive about checking back in leading up to auction date

 

– Consider consulting a credit counselor to act as an experienced intermediary on your behalf

Here are effective tips to avoid another repossession in Canada going forward:

 

– Carefully review the loan contract terms, interest rate, monthly payment before signing

 

– Build up emergency savings equal to 3-6 months of payments as a financial safety net

 

– Enroll in autopay through pre-authorized bank debits to prevent ever missing payments

 

– Keep loan servicer informed immediately of any financial difficulties you encounter

 

– Explore loan deferments, extensions or revised payment plans if needing flexibility

 

– Research steps for selling or transferring lease if unable to make payments on leased vehicle

 

– Review monthly budgets with a professional credit counselor to create a sustainable spending plan

 

– Provide co-signers and collateral only when absolutely necessary to get approved

When buying a used car from a private seller after a repossession in Canada, make sure to take these steps:

 

– Research the vehicle history through CARFAX Canada and check for outstanding liens

 

– Hire a certified mechanic to inspect the vehicle thoroughly before purchase

 

– Road test the vehicle under various conditions to check functionality

 

– Meet seller at their residence to confirm identity and ownership

 

– Carefully check all vehicle documentation for signs of fraud

 

– Agree on a Bill of Sale and sign purchase contract to protect all parties

 

– Use escrow payment services if needed when transferring purchase funds

 

Thorough due diligence protects against further repossession risks when private sales may lack financing terms.

The main places to get help negotiating with auto lenders and improving your credit after a car repossession in Canada are:

 

– Turn to a non-profit credit counseling agency for experienced guidance, often available for free

 

– Consult a lawyer specializing in consumer proposal and credit restructuring in your province

 

– Check if your bank or credit union offers personalized financial advice to existing customers

 

– Reach out to the provincial auto dealers or leasing associations to understand dealer perspectives

 

– Contact the Canada Credit Counselling Society or Credit Canada Debt Solutions

 

– Ask your provincial government consumer affairs office for laws and resources

 

– Search the Financial Consumer Agency of Canada website for educational materials

 

– Call Canada Credit Fix customer service for credit repair assistance and strategies

Some options for finding an affordable vehicle to purchase in Canada after a repossession include:

 

– Search classifieds sites like Kijiji and Craigslist for private sales of older used cars

 

– Check police and tow impound auctions which often have vehicles sold at a discount

 

– Expand searches to include vehicles with higher mileage that may have lower sticker prices

 

– Consider buying privately from family or friends willing to sell to you at below market value

 

– Explore car share or rental apps to temporarily meet transportation needs for less money

 

– Research dealers with in-house financing that offer “second chance” loans requiring just $500 to $1000 down

 

– Submit applications to Canada Drives or Car Help Canada which match higher risk buyers with participating dealerships

 

– Save diligently over the next 6-12 months until able to afford a low priced car with cash

When applying for auto financing from a dealership after a recent repossession in Canada, make sure to:

 

– Wait at least 6 months from the repo date before applying for improved chances

 

– Shop for used vehicles priced well below book value to offset lending risk

 

– Get pre-approved first from outside banks or lenders before entering a dealership

 

– Bring proof of income from current pay stubs, tax returns, government letters

 

– Prepare a copy of a recent credit report to share with dealer financing managers

 

– Offer a sizable down payment of 20% or more to show capability and commitment

 

– Inquire about extended warranty, credit life insurance, or gap insurance to coverage risks

 

– Negotiate the lowest rates possible through dealer relationships with subprime lenders

 

– Carefully read all contract terms and get promises from the dealer in writing

Some effective ways to start rebuilding your credit after a car repossession in Canada include:

 

– Pay all current monthly obligations completely on time or early

 

– Pay down credit card and other revolving account balances aggressively

 

– Become an authorized user on a family member or partner’s credit card account history

 

– Sign up for secured credit cards or secured loans requiring deposits to demonstrate responsible usage

 

– Limit applications or inquiries for new credit for 12-24 months to avoid further score decreases

 

– Review all credit reports closely and start disputes on any inaccuracies immediately

 

– Voluntarily close unused credit accounts to simplify finances and reduce future risk

 

– Register for credit monitoring alerts through Borrowell and Credit Karma Canada to track progress

 

– Meet with a non-profit credit counseling agency to create a customized credit rebuilding plan

Those in Canada with recent repossessions have several transportation options besides purchasing another car:

 

– Public transit like buses, subways, and commuter trains provide affordable transport in cities

 

– Bicycles offer a low-cost and healthy way to travel shorter distances

 

– Ridesharing services through apps like Uber allow convenient one-way and hourly rides

 

– Carsharing companies such as Turo and Communauto offer short-term rentals without long-term loans

 

– Carpooling platforms can connect daily commuters to share rides and gas expenses

 

– Electric scooters and e-bikes now available through various rental apps for quicker trips

 

– Walking is the most affordable way for pedestrian-friendly outings in your neighborhood

 

Exploring these alternative transportation services allows flexibility while rebuilding finances.

 

If at risk of another repossession in Canada, immediately take these steps:

 

– Contact the lender to request a hardship arrangement or amended payment plan based on proven need

 

– Temporarily give up the vehicle to a family or friend making payments on your behalf if possible

 

– Sell the car privately obtaining as much as possible to put towards remaining loan balance

 

– Refinance the loan through a competing lender willing to approve a balance transfer offer

 

– Voluntarily surrender the vehicle early to reduce further late fees and negative credit impacts

 

– Consult a non-profit credit counselor to facilitate discussions with the lender on your behalf

 

Acting quickly gives the best chance of avoiding another damaging repossession.

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