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You ask a good question. Assuming you can afford the payments and intend to keep the car, you should pay the $1,200. If you do not, your credit will be irreparably damaged. If you do, any damage to your credit thus far can be explained away because you will have taken the obligation back and started to make payments again. Obviously, someone who could not afford to continue with payments would not want to pay the $1,200 to get a car back, only to have it repossessed again, further harming one's credit. The $1,200 is a small price to pay to get back on track and maintain a good credit standing.
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Wow. OK. Lots of new facts here. Since you really have a problem vehicle, I would offer to pay something less than the $1,200. Go in with a list of everything you have had to deal with and pay, including your personal time because that has a value too; there is also a nuisance value. The dealer should bring down the amount you owe.
From the dealer's perspective, they really don't want that car back --- they would rather you take it, otherwise they will need to re-sell it to someone else ---- someone else who might find out everything wrong with it and want it all fixed. The deal in no way wants that.
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