Repossession Vs. Voluntary Surrendering a Car

If you are in a bad financial position and cannot afford to make your car payments anymore, you probably are aware that unless you can somehow come up with the money, you will lose the car. Although there is not much difference between repossession and a voluntary surrendering of the car, a voluntary surrender is somewhat better for you. If you voluntarily surrender your car instead of waiting for your lender to take it from you, you are showing some responsibility and that you are working in good faith with the lender.

Features

In a repossession, the creditor takes back your car if you stop making payments. In a voluntary surrender, you give back the car, usually after you have fallen behind on your payments. Both have the same negative effect on your credit rating, because both will appear as a repossession, according to Bills.com. Not paying back the debt you agreed to pay is what hurts your credit. The benefit of voluntarily surrendering your car is that you will not be charged any costs associated with a repossession.

Function

In order to voluntarily surrender your car, contact the lender and explain that you can't make your payments and that you want to surrender the vehicle. The lender will tell you what you must do. With a voluntary surrender, you aren't burning any bridges in case you ever want to obtain another loan with this lender, according to Experian.com.

Considerations

Your creditor may be resistant to the idea of your surrendering the vehicle, according to Bills.com. Lenders are not in the car business and would rather have you pay back the loan, so the creditor may try to work out a deal with you. If no deal will work for you, then surrendering the vehicle may be your best choice.

Warning

In repossessions and voluntary surrenders, the lender will sell your car at auction. You will be liable for any money the lender is short after the sale. For example, if you owe $10,000 on your car and the dealer is able to sell your car at auction for only $7,000, you will owe your lender $3,000. Some states have consumer protection laws that restrict creditors from doing this. Your state consumer protection agency can explain the laws of your state.

Prevention/Solution

Before you voluntarily surrender your car, see if any better option exists for you. If you have a good credit history, you may find a lender who will refinance your loan. Many banks will work with consumers to find a loan with better terms, according to Bills.com.