How to Return a Vehicle to the Bank

Returning a vehicle to a bank is a significant financial decision, often when a borrower struggles to meet loan payments or seeks to end their financial obligation. This can happen voluntarily or through lender action. Understanding the processes and consequences is important.

Voluntary Vehicle Surrender

Voluntary vehicle surrender involves the borrower proactively returning the vehicle to the lender. Contact the lender to communicate your intent to surrender the vehicle. Expect to discuss your inability to continue payments.

Upon notification, the lender will provide instructions for the vehicle’s return. This often includes details on where to drop off the vehicle or arranging for a scheduled pick-up. Before surrendering the vehicle, remove all personal belongings and ensure all keys, accessories, and manuals are present.

Inquire about any required paperwork. Maintaining records of the date, location, and the individual with whom the vehicle was surrendered is advisable for future reference. After surrender, the lender will inspect the vehicle and prepare it for resale, usually at an auction.

Understanding Vehicle Repossession

Vehicle repossession occurs when a lender seizes a vehicle due to missed loan payments. While a lender can repossess a vehicle as soon as a payment is missed, most repossessions happen after payments are 90 days or more past due. A repossession agent often uses a tow truck to reclaim the vehicle from various locations, including private property, as long as there is no “breach of the peace”.

Borrowers have rights and responsibilities during and after repossession. They have the right to retrieve personal belongings from the vehicle, though this can be challenging. The lender must notify the borrower of the impending sale, including details like the time, date, and place of a public auction, or the date after which a private sale will occur. The lender must sell the vehicle in a “commercially reasonable manner,” aiming for a fair price, though not necessarily the highest.

Financial Outcomes of Returning a Vehicle

Returning a vehicle, whether voluntarily or through repossession, carries financial consequences. A common outcome is a “deficiency balance,” the difference between the outstanding loan amount (including repossession and sale costs) and the amount the lender recovers from selling the vehicle. For example, if a borrower owes $12,000, and the repossessed car sells for $3,500 with $150 in repossession and auction fees, the deficiency balance would be $8,650. This balance, which can be substantial due to low auction prices and added fees like towing, storage, and administrative costs, remains your responsibility.

Both voluntary surrender and repossession negatively affect your credit score and credit report. A voluntary surrender is a negative mark, indicating a failure to repay the auto loan, and can lower your credit score. Repossession also results in a derogatory mark that can remain on your credit report for up to seven years from the first missed payment that led to the default. This negative credit impact can make it more difficult to obtain future credit, including other vehicle loans, and may lead to higher interest rates if approved.

Lenders may pursue legal action to collect the deficiency. If you do not pay, the lender can file a lawsuit to obtain a deficiency judgment, a personal judgment against you. This judgment can lead to collection efforts like wage garnishment or liens on other property until the debt is repaid.

Exploring Options Before Returning a Vehicle

Before returning a vehicle, borrowers facing financial difficulty have several alternatives. Communicating with the lender early is important to discuss solutions. Lenders may offer options such as deferment (allowing payments to be postponed) or loan modification (adjusting loan terms to reduce monthly payments).

Selling the vehicle privately is another option, especially if its market value is close to or exceeds the outstanding loan balance. This can help pay off the loan and avoid the negative credit impact of a surrender or repossession. Refinancing the loan may also be possible if the borrower’s credit has improved or interest rates have decreased, potentially leading to lower monthly payments or a shorter loan term.

Reviewing personal finances and creating a budget can help identify areas for cost-cutting to free up funds for car payments. Financial experts often suggest allocating no more than 10-15% of monthly take-home pay to car payments. By adjusting spending habits, such as reducing non-essential expenses, borrowers might be able to make their current vehicle payments more manageable and avoid the financial repercussions of a vehicle return.