What Happens If You Voluntarily Turn In Your Car?

Voluntarily turning in your car, also known as voluntary surrender, occurs when a borrower returns a vehicle to the lender due to an inability to make payments. This differs from an involuntary repossession, where the lender seizes the vehicle without the borrower’s initiation.

The Voluntary Surrender Process

Initiating a voluntary surrender begins by contacting your lender to inform them of your inability to make payments and your intent to return the vehicle. Inquire about the specific procedures and documentation required.

The lender will provide instructions on how and when to return the vehicle. This may involve dropping the car off at a designated location, such as a dealership or return center. Before the scheduled return, clean out the vehicle and remove all personal belongings.

At the time of surrender, you will likely need to sign paperwork, often a surrender agreement, which formalizes the transfer of the vehicle back to the lender. It is advisable to keep records of this interaction, including the date, location, and the name of the representative you worked with.

Understanding the Financial Outcomes

A significant financial consequence of voluntarily surrendering a car is the potential for a deficiency balance. This balance represents the difference between the outstanding loan amount and the proceeds the lender recovers from selling the vehicle, minus any associated costs of the sale. For example, if you owe $10,000 and the car sells for $7,000, you would still be responsible for the $3,000 difference, plus any costs.

Lenders typically sell the surrendered vehicle at auction, and the sale price often does not cover the full outstanding loan amount due to depreciation and market conditions. This means that even after returning the vehicle, a debt often remains.

Various fees can add to the total amount owed. These may include administrative fees associated with the surrender process, reconditioning fees for any necessary repairs or cleaning to prepare the vehicle for sale, and auction fees.

Lenders will pursue collection of any deficiency balance. This can involve direct collection efforts from the lender, turning the debt over to a third-party collection agency, or in some instances, legal action to obtain a deficiency judgment. Such a judgment legally obligates the borrower to pay the remaining debt, potentially leading to measures like wage garnishment or liens on other assets.

Impact on Your Credit

Voluntarily surrendering a vehicle can significantly affect your credit history and score. The surrender will be noted on your credit report, typically appearing as “voluntary surrender” or “repossession.” This entry indicates a failure to fulfill loan terms, viewed negatively by credit bureaus.

This negative mark can cause a substantial decrease in your credit score, potentially by 50 to 150 points or more, depending on your credit profile prior to the surrender. The voluntary surrender entry remains on your credit report for up to seven years from the date of the original delinquency.

Having a voluntary surrender on your credit history can create challenges when attempting to obtain new credit. Lenders may view you as a higher risk, potentially leading to denials for new loans, such as car loans, mortgages, or credit cards. If approved, you may face less favorable terms, including higher interest rates, due to the perceived risk.

If the lender obtains a deficiency judgment for the remaining balance, this legal action can further compound the negative impact on your credit. While civil judgments generally do not appear on credit reports from major bureaus, they are public records that potential lenders can access and consider during loan applications.

Exploring Other Payment Solutions

When facing difficulties with car payments, explore other financial strategies before considering a voluntary surrender. One option is refinancing the existing car loan. Refinancing involves securing a new loan to pay off the current one, potentially with a lower interest rate or an extended repayment term, which could result in lower monthly payments.

Another approach is to sell the vehicle yourself. If the car’s market value is greater than or equal to the outstanding loan balance, selling it privately can allow you to pay off the loan in full, avoiding a deficiency balance and a negative mark on your credit report.

Negotiating directly with your lender can also provide alternative solutions. Lenders may be willing to offer payment deferral, allowing you to skip a payment and add it to the end of your loan term, or a loan modification to adjust your payment schedule or interest rate. Some lenders also have temporary hardship programs designed to assist borrowers during financial difficulties.

Considering your overall budget and seeking professional financial counseling can provide a clearer picture of your financial situation and help identify sustainable solutions. Financial counselors can assist in creating a workable budget and exploring all available options for managing debt. These proactive steps can help avoid the need for voluntary surrender.