Returning a car to your bank does ruin your credit. Returning the car without completing payments is known as "voluntary repossession" and significantly decreases your credit score. In addition, you're still required to pay the balance of your loan if the bank sells the vehicle for less than you owe. If you don't pay, your credit may be further damaged.
Repossession
Because you returned the vehicle yourself, your credit report will read "voluntary repossession." A credit report will state "involuntary repossession" when a bank must seize the vehicle itself using a towing or repossession company. Both instances affect your credit the same, so returning the car yourself doesn't make a difference to your credit rating. You will avoid paying excess fees the bank charges to locate and seize the vehicle when you return it yourself. The repossession will remain on your credit report for at least seven years.
Bank Process
Once the vehicle is in the bank's possession, it will sell the car either privately or at auction. You'll receive correspondence from the lender stating the date it intends to sell the vehicle and the amount you can pay to retrieve the car if you want it back. If you don't pay to get the car back, you'll receive another letter after the sale stating the balance due on your loan. If the bank was able to sell the vehicle for more than you owed, you'll receive the excess payment as profit.
Paying Your Lender
Make arrangements to pay your lender the excess balance on your loan to avoid further damage to your credit. Your credit report will still list the repossession and the balance due to satisfy the loan agreement. If you don't pay, the lender can sue you to collect the balance. Once the lender wins the lawsuit, it can issue a judgment to garnish your wages. Having a judgment listed on your credit report further decreases your credit score. The judgment will remain on your credit for at least seven years, even after the lender receives payment.
Fixing Your Credit
You can eventually improve your credit rating even after the repossession. Continue paying your other loan accounts on time every month, such as your credit and loan balances. While utility bill payments or other debts you pay aren't reported to the credit bureaus while your account is in good standing, non-payment is reported to the credit bureaus and further damages your credit. After several years of satisfactory payment history, you'll decrease the impact of the repossession on your credit score and may be able to pursue other lines of credit.
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