How to Voluntarily Repossess Your Car
Navigate difficult car loan situations responsibly. Learn the complete process and financial implications of voluntarily repossessing your vehicle.
Voluntary repossession, also known as voluntary surrender, occurs when an individual returns a vehicle to their lender because they can no longer afford the agreed loan payments. This action serves as an alternative to an involuntary repossession, where the lender takes the vehicle without the borrower’s cooperation. The primary motivation for considering this option is to proactively manage a challenging financial situation and avoid a forced repossession.
Understanding Voluntary Repossession
Voluntary repossession differs from an involuntary repossession because the borrower willingly returns the vehicle. In contrast, an involuntary repossession involves the lender seizing the vehicle, sometimes without warning. While voluntary surrender offers more control, the loan obligation does not disappear. The borrower remains responsible for the outstanding debt.
A significant concept in this process is the “deficiency balance.” This amount represents the difference between the outstanding loan balance and the price the lender receives when selling the repossessed vehicle, often at an auction. Additional fees, such as those for towing, storage, and administrative costs incurred during the repossession and sale, are typically added to this remaining debt. Before initiating a discussion about voluntary repossession, individuals should have their loan account number, the vehicle identification number (VIN), and current mileage readily available for the lender.
Steps for Voluntary Repossession
Begin by contacting the loan servicing department of your lender. Clearly communicate your inability to make payments and your intention to surrender the vehicle. Inquire about the lender’s specific process for voluntary returns and any required documentation.
The lender provides instructions for arranging the vehicle’s return, which may involve dropping it off at a designated location or arranging for pickup. Before surrendering the vehicle, remove all personal belongings and document its condition, including photographs and current mileage. After the vehicle is returned, obtain written confirmation from the lender acknowledging the surrender and detailing any remaining obligations.
Financial Implications
Voluntary repossession impacts a borrower’s credit score and credit report. It is reported as a derogatory mark. This negative entry can remain on credit reports for up to seven years from the date of delinquency. Credit scores can drop by an estimated 50-150 points, depending on prior credit history and missed payments.
Once surrendered, the lender sells the vehicle, typically at auction, to recover a portion of the outstanding loan balance. Since auction prices are often lower than the vehicle’s market value, a deficiency balance commonly remains. The borrower remains legally obligated to pay this deficiency balance. Lenders may pursue collection efforts for this debt, which can include turning the account over to a collection agency or initiating legal action to obtain a judgment, potentially leading to wage garnishment.
Borrowers may attempt to negotiate a payment plan for the deficiency balance or offer a lump-sum settlement for a reduced amount. A voluntary repossession can make it more challenging to obtain future loans, such as car loans or mortgages. Approved loans may come with higher interest rates, as a repossession indicates a history of loan default to lenders.