Anybody can fall behind car payments for one reason or another. Whether you’ve lost your job or your expenses outweigh your income, when you can no longer pay for your car, you have to think of something quickly to fix the situation.
If you don’t, the lender could end up repossessing your car. Instead of waiting around for the lender to close in on you and to take your car away, you can opt for a voluntary repossession.
Voluntary repossession refers to the act of returning the car voluntarily to the lender because you’re no longer able to make your payments as per the agreement.
How Bad Does a Voluntary Repossession Hurt Your Credit Score?
Voluntarily returning your car means that you’ve failed to pay the debt as agreed, and this is something that every lender is likely to look into before giving you a loan. In fact, voluntary repossession is regarded as a loan default and will likely be on your credit reports for the next seven years.
The next time you’ll be looking to apply for a car loan, the lender will likely charge you more interest because you’re regarded as a high risk. Even though your credit score might get hit after a voluntary repossession, the damage isn’t so severe compared to involuntary repossession.
This is because a voluntary surrender is noted in your credit reports. When lenders look closely at these reports, they will know that you were communicating and cooperating with your previous lender. This means that you took the responsibility for your financial problems and tried working out a solution with the lender. After a voluntary repossession, it’s important to work on your credit.
The negative mark from that repo will eventually fade, but you have to do your part by increasing the positives, including paying your bills on time.
How Do You Do a Voluntary Repossession?
Before you surrender your car, contact your lender, and inform the institution that you can no longer make your payments as per the agreement and that you’d like to surrender the car.
Ensure that you agree on the time and place that the car should be picked up. It’s important for you to keep a record of when, where, and who you dropped the car with.
What Happens If You Do a Voluntary Repossession?
Even after voluntarily surrendering your car, it doesn’t mean that you’re off the hook as far as the payments are concerned. After the lender resells the car, it will send a statement to you indicating the details of the sale.
Like involuntary repossession, you’re also required to pay the difference between what you owed and what the car sold for. This is usually referred to as the deficiency balance.
In the event that you do not pay the deficiency balance, the lender is entitled to present the balance to a collection agency. It’s important to note that something like this will only worsen your credit score.
You might also incur extra charges, such as late payment fees. However, you can discuss with the lender a payment schedule for this amount instead of paying it in a lump sum.
At times the lender might decide to forgive the deficiency balance debt. However, the IRS will expect you to report this as a forgiven debt when filing your taxes so you may be taxed on it.
How Does a Voluntary Repossession Compare With a Standard Repossession?
Even though both voluntary and standard repossessions are considered derogatory, there is an upside to the former. When you voluntarily surrender your car, it shows that you’re responsible and honest.
Also, when you opt for voluntary repossession, you do not suffer the embarrassment of having your car taken away from you at your home or at your place of work. You also end up avoiding extra charges that come with standard repossession, such as towing fees.
One of the best things about voluntary repossession is that you maintain a good relationship with your lender. When you maintain communication with your lender, they might extend your credit to a later date after resolving your financial problems.
This means that you get to keep the car until you’re in a better position to resume the regular payments as per the contract.
What Are the Alternatives to Voluntary Repossession?
- Contact your lender beforehand – Before you decide to surrender your car, you can contact your lender and inform it about your financial situation. Your lender might be willing to extend your payment period or even change the terms of the loan to be more affordable for you. The lender can even be willing to change your payment schedule completely. However, you should always get the new loan terms in writing.
- Sell the car – If the remaining loan balance is way less than the car’s value, you might opt to sell the car by yourself. This will provide you with the money you need to pay off the loan and to look for a much cheaper vehicle.
- Refinance the car loan – Instead of voluntarily surrendering your car, you can work closely with your lender to refinance your car. You can renegotiate the loan terms to extend your payment period or even to lower your interests. By getting lower interest, it means that you end up paying more affordable monthly payments.
If you’re looking for a car loan that will help prevent you from having to voluntarily repossess your vehicle, contact us at New Roads Auto Loans, and get instant approval even with bad credit, bankruptcy, or no credit. Zero down payment required. Apply today!