The short answer to whether voluntary car repossessions affect your credit is that they do. In fact, a voluntary repo is just as bad for your credit as a standard repossession is. They both appear as a repossession on your credit report. If you cannot pay your car payment, however, the best action for you to take is to notify your lender.
Notify the Lender
The Federal Trade Commission recommends that you notify your lender as soon as you realize that you cannot make your car payment. Your lender does not want to take the car, so you may be able to work out a deal. You may be able to delay your payments if your loss of income is only temporary, or your lender may revise your payments to a more affordable level. If you can negotiate a deal, this saves your credit from taking a hit because of a repossession.
Voluntary Repossession
If your lender will not negotiate with you, you would turn your car in as a voluntary repossession. Your creditor will enter the repossession on your credit report, which means your score will go down. Your credit report may show the repossession as voluntary, but your credit score will still suffer, according to Bankrate.com. Payment history comprises 35 percent of your credit score.
Deficiency Balance
If you do turn your car in as a voluntary repossession, you still owe any deficiency balance on your contract. A deficiency balance is the balance remaining on the car after the lender sells the car at auction. If you can't pay that back, your lender can get a judgment against you, which will also go on your credit report.
Voluntary Versus Standard Repossession
The only money you save by voluntarily giving up your car is the creditor's expense that comes with a forced repossession, meaning hiring a repo man. You are responsible to pay any costs the lender must pay associated with a standard repossession. If you are sure that you cannot make your car payments, a voluntary repossession can save you some money.
Potential
Even though a voluntary repossession is as bad for your credit score as a standard repossession, you may receive some benefit with the original lender, according to the Experian website. If your credit report shows a voluntary repossession, you maintain a more positive relationship with the lender. You don't burn any bridges with the lender as you do with a standard repossession. The lender might be willing to work with you in the future as soon as your financial difficulties are resolved, according to Experian.
0 comments:
Post a Comment