What Happens If I Voluntary Repo My Car?
Learn the full implications of voluntarily repossessing your car, from the process to its financial and credit consequences. Understand your options.
Voluntary repossession involves returning a financed vehicle to the lender when loan payments become unmanageable. This process offers an alternative to an involuntary repossession, where the lender seizes the vehicle. Electing for a voluntary repossession can provide some control over the return process, potentially reducing certain associated fees and the distress of an unexpected seizure.
Initiating a Voluntary Repossession
Initiating a voluntary repossession begins with direct communication between the borrower and the lender. Inform the lender about the inability to continue making payments and the intention to surrender the vehicle. Inquire about specific return procedures, including where to deliver the vehicle and any required paperwork. Lenders will provide instructions on how and where to return the vehicle, which might involve dropping it off at a dealership or a designated location.
Prepare the vehicle for return once arrangements are made. Remove all personal belongings from the car before surrendering it. Gather all relevant documents, such as keys, the vehicle title if applicable, and any manuals or accessories. Obtain written confirmation of the vehicle’s return from the lender, documenting the date and time of the surrender.
Financial Consequences of Voluntary Repossession
A voluntary repossession impacts a borrower’s financial standing, particularly their credit score. This action is reported to credit bureaus as a repossession and can remain on a credit report for up to seven years from the date of the first missed payment that led to the default. While “voluntary surrender” might appear on a credit report, it carries a negative impact similar to an involuntary repossession. A voluntary repossession can lower a credit score by approximately 50 to 150 points, depending on an individual’s prior credit history.
After the vehicle is returned, the lender sells it, often at a public or private auction, to recover some of the outstanding loan balance. The sale price may be less than the remaining loan amount due to depreciation and the nature of auction sales. If the sale proceeds do not cover the full outstanding loan balance, plus any associated costs incurred by the lender, a “deficiency balance” arises. For example, if a borrower owes $12,000, and the car sells for $3,500, with $150 in repossession and auction fees, the deficiency balance would be $8,650 ($12,000 – $3,500 + $150).
These additional costs, added to the deficiency balance, can include:
Towing fees (typically $50 to $250)
Storage fees (can accumulate at $20 to $50 per day)
Auction fees (often 10% to 15% of the sale price)
Reconditioning, late fees, or legal fees
The borrower remains responsible for this deficiency balance.
Addressing the Remaining Debt
After the vehicle is sold and the deficiency balance is determined, the lender will contact the borrower to collect the remaining debt. Borrowers have several options for addressing this balance, including paying the full amount, negotiating a settlement, or arranging a payment plan. Lenders are often open to negotiating a lump-sum settlement for a reduced amount, especially if the borrower can demonstrate financial hardship. They may also set up a reasonable payment plan, sometimes requiring automatic payments.
If the deficiency balance is not paid, the debt may be turned over to collection agencies, leading to persistent calls and letters. The debt will likely appear on the borrower’s credit report as a collection account, further affecting their credit score. This collection account will remain on the credit report for seven years from the original delinquency date of the loan.
If collection efforts prove unsuccessful, the lender may pursue legal action to recover the deficiency balance. This typically involves filing a lawsuit to obtain a deficiency judgment against the borrower. If a judgment is granted, the lender can employ various collection methods, such as wage garnishment or bank levies. Wage garnishment can result in a portion of the borrower’s take-home pay, often up to 25%, being withheld to satisfy the judgment. A bank levy allows the creditor to freeze and seize funds from the borrower’s bank accounts.