Returning your vehicle back to a dealership or bank is known as repossession. Breaking a loan contract significantly impacts your credit rating. Learn what to expect after the vehicle's return; you will still owe money to your borrower. Your credit can be further damaged if you don't pay your lender for the balance due after the resale of your repossessed vehicle.
Repossession
If you make arrangement to return your vehicle, it is known as a voluntary repossession. If your lender hires an outside collection company to collect your vehicle, the repossession is reported as involuntary. Both types of repossession affect your credit the same. Make arrangements with your lender to return your vehicle if possible, as an involuntary repossession may prove embarrassing or unexpected. A repossession company can take your vehicle from wherever you leave it, which includes a parking lot while you're in a store shopping, your place of employment or your driveway.
Credit Reporting
Your credit score starts to decline once you become late on your car payments. Future creditors can view how long your account is past due before the repossession occurs. For example, if your account was 90 days past due and you returned your vehicle voluntarily; both instances are listed with your loan account and is viewable to future lenders for at least seven years. Once the vehicle is returned and the repossession is counted against you, your credit score will drop substantially. You may be declined for future loans, credit cards and even employment or an apartment because of the repossession.
Paying Loan
Once your vehicle is repossessed, the bank will resell it in an attempt to minimize its loss. If you owe less than the vehicle's sales price, the lender will return the profit to you. If not, expect to receive a statement itemizing your fees and the amount of money due on your loan balance. Lenders usually offer a payment plan once the vehicle is resold. The repossession will still remain on your credit history even once you pay the balance.
Long-Term Expectations
Your lender is within its rights to sue you for the amount of money you owe, as stated in your loan contract. If the lender sues you and you still refuse to pay, the bank can pursue a judgment and garnish your wages. A judgment is also reported to the credit bureaus, furthering damaging your credit rating. If you decide to settle the balance due to avoid the judgment, you must pay applicable taxes on the amount of the loan balance that you did not pay, which counts as income. Expect to pay any taxes due or the Internal Revenue Service can report your nonpayment to the credit bureaus, as well as garnish your wages.
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