When you fall behind on your car loan payments, the lending bank has the right to repossess your car. This repossession is known as repossession, and depending on the terms of your loan, the lender can do so without going to court. However, when you return your car to the lender or dealership before a repo agent is sent to pick it up, this is known as a voluntary repossession. You might consider voluntary repossession if you can no longer keep up with your car loan payments and have no other options. The main advantage of voluntary repossession is that you won’t have to face the cost of having the car repossessed by the lender.
Voluntary repossession can reduce fees
When the lender takes your car, they won’t knock on your door and ask for the keys. Depending on state law, the lender can repossess your vehicle at any time without notice. They can enter your private property to do so. They won’t call you to ask for a convenient time. The towing service will transport the car to a storage facility. Both services charge fees that the lender passes on to you. You can avoid these costs associated with your outstanding balance by voluntarily surrendering your vehicle.
Voluntary repossession affects your credit
The missed payments before the voluntary repossession will show up on your credit report. After that, the repossession itself will also appear on your credit report. Both pieces of negative information will remain on your credit report for seven years. This will affect your credit score, but the exact damage depends on the other information present on your credit report. Don’t give up on your other loans and bills. Your credit score can recover from voluntary repossession if you continue to make all your other payments on time.
Voluntary repossession does not cancel your loan
Turning your car over to the lender does not relieve you of your loan obligation. The lender will sell your car at auction and deduct the sale proceeds from your loan. If the sale price is lower than your loan balance, you are still responsible for the remaining balance. For example, if you owe $5,000 and the car sells for $3,500, you would still owe $1,500. The lender may refer the debt to a collection agency for further collection efforts on the balance, and the collector may report the debt amount to your credit report. The lender may sue you for the debt, and if they win a judgment, the court may also allow them to garnish your wages to recover the remaining balance.
You may have difficulty obtaining another car
Due to the damage to your credit from the voluntary repossession, you will have a hard time getting a new car. It’s unlikely that another party will agree to finance your vehicle when the repossession is recent on your credit report, especially when you still have an outstanding balance on a car loan. Your options will be limited to a type of dealership, “buy here, pay here,” which has less stringent credit requirements but higher prices, higher interest rates, and higher monthly payments. Or if you are able to save enough, you could buy a car from a used car market or a private seller.
You may be able to keep your car
You need to take action as soon as you feel the pinch of your monthly loan payment. Once you miss one payment, it becomes hard to catch up in the current month, and in some states, all it takes is one missed payment for the lender to repossess the vehicle. It also depends on your contract terms. Work on improving your financial situation. Create a budget to ensure you are maximizing the amount of money you have each month. Review your spending and look for areas you can cut back to better enable you to make your car payments. Consider taking a part-time job. A second (or third) job may leave you with less free time, but the extra money can help you avoid the long-term credit damage that comes from voluntary repossession. A profitable hobby or side business is another option for getting extra cash. Consider refinancing your car loan. If your credit score is still good, you might qualify for a new loan with a lower, more manageable monthly payment.
Source:
https://www.thebalancemoney.com/voluntary-repossession-facts-960964
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