Voluntary repossession is sometimes the best option for borrowers who can no longer afford their car payments. Rather than have your car seized involuntarily, you can give up your vehicle willingly to your lender. So how much does voluntary repossession affect your credit?
Should I Allow a Voluntary Repossession with No Late Payments?
Although voluntary repossession is a better option than having your vehicle repossessed against your will, it will negatively impact your credit score and history. For that reason, you should first consider other ways to make payments or give up your vehicle.
Firstly, if your financial problems are only temporary, you should contact your lender to see if there’s a way in which you can make late payments without being at risk of repossession. You can contact your creditor and see if you can negotiate a repayment plan that will allow you to make late payments. If possible, contact them before missing any of your car’s payments. That way, you’ll still be in good standing with your lender, increasing the likelihood that they’ll allow a repayment plan.
Instead of a repayment plan, you could also offer to sell it back to them privately to avoid the voluntary repossession from appearing on your credit history.
If you’re having more serious debt problems that extend beyond your vehicle, you should consider Chapter 7 or Chapter 13 bankruptcy. Filing will put an automatic stay on your possessions, and there are several options when it comes to vehicle debt in bankruptcy. A bankruptcy attorney can walk you through those options.
What Is Voluntary Repossession?
In the event that bankruptcy isn’t right for your financial situation and your lender isn’t willing to negotiate or buy back your vehicle, voluntary repossession will likely be your best option moving forward.
Voluntary repossession is the process of giving back personal property to a lender to avoid involuntary repossession. You might surrender your vehicle voluntarily after missing payments, or if you know that you’ll be unable to make payments in the future, you might give up your vehicle to avoid having missed payments appear on your credit history.
Lenders have the right to repossess your car if you fail to make payments or don’t obtain car insurance, so surrendering your vehicle could be your best course of action to mitigate the damage to your finances and credit.
You can start the voluntary repossession process by contacting the lender. You simply tell them that you can no longer make payments on the vehicle, and you can schedule a time to return the car. After surrendering the vehicle, the lender will sell it in order to regain their losses. If what the lender makes at the sale of the car is less than what you owe, there will be a deficiency claim. The lender can come after you for the balance.
While speaking to your lender, you can see whether they’re willing to buy the car or allow a repayment plan rather than going straight into voluntary repossession.
Pros and Cons of Voluntary Repossession
Although voluntary repossession is a much better alternative to having a lender repossess your car involuntarily, it has both pros and cons.
One benefit of voluntarily surrendering your vehicle is you don’t need to worry about the embarrassment and emotional distress of having it repossessed against your will. A creditor could repossess your vehicle at any time once you fail to make payments, and they can come to your house, place of work, or any other location to obtain your car. This can cause a stressful or even humiliating situation.
When you surrender your vehicle voluntarily, you have more control over the process and can schedule a time to give up the vehicle without it being repossessed unexpectedly.
Unfortunately, repossession always hurts your credit regardless of whether it’s voluntary or involuntary, but a voluntary repossession will appear as a “voluntary surrender” rather than a “repossession,” which is marginally better for your credit score.
Additionally, you may still owe your lender money after giving up your vehicle. The lender will sell your car in order to recover the money that you owe, but creditors are often unable to sell vehicles for their full loan amounts. This is common because cars depreciate over time, so they are often worth less than their loan amounts.
For example, if your outstanding loan is for $10,000 and your lender sells the vehicle for $6,000, you’ll still be responsible for paying back the final $4,000 even though you’re no longer in possession of the car.
How Much Does a Voluntary Repossession Affect Your Credit?
Although voluntary repossession will not negatively impact your credit as badly as involuntary repossession, it will appear on your credit history as a negative mark and will hurt your score. Additionally, if you missed car payments leading up to the voluntary repossession, that will also hurt your score and credit history.
If you still owe money after your lender sells the vehicle, you’ll need to pay off the rest of the amount. Otherwise, the debt will go to collections, further impacting your score.
A voluntary repossession will remain on your credit report for up to seven years, but it’s better than having multiple missed car payments and an involuntary repossession.
Unfortunately, while the voluntary repossession remains on your credit report, you’ll have a harder time obtaining a new auto loan.
Contact an Indiana Bankruptcy Attorney
If you need assistance in becoming debt-free, contact the attorneys at Sawin & Shea, LLC. You don’t have to wonder how much does a voluntary repossession affect your credit. We have the answers. We’ve helped numerous Indiana residents overcome crippling debt, and we also assist victims of creditor harassment. Contact us today at 317-759-1483, or you can schedule a FREE consultation with an attorney here.