How to Turn In a Car to the Bank

Turning in a car to the bank, often termed voluntary surrender or voluntary repossession, occurs when a borrower proactively returns a financed vehicle to their lender. This action happens because the borrower can no longer afford the agreed-upon loan payments. It represents a structured approach to addressing financial hardship before the lender initiates an involuntary repossession.

Understanding the Implications of Voluntary Surrender

Voluntary surrender carries significant consequences, primarily affecting one’s credit profile. This action is recorded as a derogatory mark on credit reports, similar to an involuntary repossession. Such a negative entry can remain on credit reports for up to seven years from the date of the first missed payment leading to surrender. Both scenarios severely impact credit scores, potentially causing a drop of around 50 to 150 points. This reduction can make it challenging to secure new credit, including future car loans or mortgages, and often results in higher interest rates if credit is extended.

Even after returning the vehicle, borrowers remain responsible for a “deficiency balance.” This balance represents the difference between the outstanding loan amount and the price the lender receives when selling the car. For instance, if a borrower owes $10,000 and the car sells for $7,000, they would still owe the $3,000 difference, along with any additional costs incurred by the lender. These additional costs can include expenses like towing, storage, and auction fees, which are added to the total amount owed. The borrower’s financial and legal obligations persist until this deficiency is resolved.

Preparing for Voluntary Surrender

Before contacting the lender, borrowers should prepare for the surrender process. Borrowers should collect all relevant loan documents, including the original loan agreement and recent statements, to understand the current outstanding balance and terms. Remove all personal belongings and clean the vehicle, as lenders are not responsible for items left behind. Documenting the car’s condition with photographs or video before surrender can provide a record in case of future disputes regarding damage.

When contacting the lender, be informed about your financial situation. Clearly state your inability to continue making payments and your intention to voluntarily surrender the vehicle. Inquire about the lender’s specific voluntary surrender process, including drop-off location and required documentation. Request written confirmation of any agreements made, detailing the remaining loan balance and any potential fees or penalties you might still owe.

The Surrender Process

After preparing and communicating with the lender, the actual surrender involves handing over the vehicle. The lender will provide instructions on scheduling a time and location for drop-off, which may be at a dealership or a designated facility. At the time of surrender, ensure you obtain written documentation confirming the vehicle’s return. This documentation, often a surrender agreement, should detail the date of return and acknowledge the vehicle’s transfer.

Record the names of individuals you interact with and keep copies of all signed paperwork for your records. After surrender, the lender takes possession and prepares it for sale. This involves selling the car through public auction or other resale channels to recover a portion of the outstanding debt.

Addressing the Deficiency Balance

Following the vehicle’s sale, the lender will calculate the deficiency balance and notify the borrower of the amount still owed. This notification will detail the sale price, the remaining loan balance, and any added fees. Review this statement carefully to understand the final debt.

Borrowers have several options for addressing this remaining debt. One approach is to negotiate a settlement with the lender, often offering a lump-sum payment for a reduced amount of the deficiency. Lenders may agree to settle for a percentage, especially if the borrower can demonstrate financial hardship. Alternatively, borrowers can arrange a payment plan to pay off the deficiency balance over time. If the debt remains unpaid, the lender may sell the debt to a collection agency or pursue legal action, which could result in a lawsuit, judgment, and potentially wage garnishment or liens on other assets.