Can I Give My Car Back to the Creditor?

Giving your car back to the creditor is known as repossession. Repossession significantly damages your credit and should be avoided. Other options exist that may prevent you from having to return your car. Learn about the process, effects and other options before you decide if you should give your car back.

Types

The two types or repossession are voluntary and involuntary. An involuntary repossession occurs when the bank hires a towing company to come and collect your car for return when payments are late or behind. A voluntary repossession occurs when you decide you will no longer pay for the car as stated in your contract and you make arrangements to return the car to the creditor.

Significance

A voluntary and involuntary repossession have the same impact on your credit report. Your credit score will drop significantly and you can expect the repossession to remain on your credit for at least seven years. While you can still secure a loan after enough time has passed with your repossession, expect a higher interest rate while the mark remains on your credit. Rebuilding your credit after a repossession is difficult and can cost you thousands of dollars in interest payments if you do secure a future line of credit.

Warning

A repossession does not mean you can return your vehicle to the bank and go on payment-free. You are responsible for paying the loan amount specified in your contract. Once the vehicle has been resold by the bank, any money lost is due by you at some point. If your bank offers to settle the loan and allows you to pay less than the total amount owed, the canceled part of the debt is reported to the IRS (Internal Revenue Service). The IRS considers the canceled debt a gift of sorts; you will have to pay taxes on the amount. If you ignore attempts by the bank to collect payment or arrange for a payment plan, the bank is within its legal rights to sue you, enforce a judgment against you and garnish your wages.

Other Options

Avoid repossession if you can. Call your lender; it might have programs to help you, such as payment deferment, loan extension or a temporary reduction in payment. You might be able to sell your car on your own. Once your bank knows of payment problems, ask for the vehicle's payoff amount if you want to try to sell it privately. If you make a profit beyond the payoff amount, you can keep it. If you sell for less, you must come up with the remaining money due to satisfy the loan. Explore your options before returning your car to the creditor.

Process

Once your vehicle is returned to the creditor, you'll get a letter within a few weeks that states the amount due to get your car back before it is sold by the bank. The amount includes any past due payments, bank fees and tow fees if your vehicle was repossessed by a tow company. You don't have to answer the letter. Once the vehicle is sold at auction, you'll receive another letter that states the selling price and whether or not a profit was made. The profit will be returned to you, but you are responsible for any money due. The bank will contact you soon after the auction to discuss payment arrangements. The bank may take you to court at any time after bank efforts for payment have been ignored.

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Do You Have to Buy the Car After You Paid the Deposit?

You can back out of a car deal after you've paid a deposit. Depending on the agreement you made with the dealer, it may not want to refund your money. Do not leave a deposit on a vehicle unless you intend to buy it. Otherwise, if you want to hold the car, make sure the dealer notes that the deposit is refundable.

Your Receipt

Prevent any hassle at the dealership by signing a receipt that truly reflects your purchase decision. For example, if you aren't sure you want to buy the vehicle but are offered a chance to hold it by leaving a small deposit, make sure the dealer notes this on the receipt. The dealer should note that your deposit is refundable based on your ultimate decision. If you intend to purchase the car and leave a deposit to prove your interest, read your receipt. Most states don't allow a dealer to keep a deposit unless you actually buy the car, which involves signing additional paperwork beyond the receipt.

Additional Paperwork

If you left a deposit and only signed a receipt, you did not buy the car. If you signed additional paperwork, you may have bought the car, although unless you're driving it, you can probably back out of the deal. Go over your paperwork to review the documents you've signed. If you agreed to an end-of-month deal and signed loan contracts and motor vehicle paperwork but didn't take the car, your dealer probably did not process your paperwork and you can still cancel the purchase.

If You Took the Vehicle

Most dealerships require a deposit if you want to purchase a vehicle but can't do so that day. For example, some customers may have a loan approval but need to pick up the check, or they may be waiting for an insurance settlement to provide a down payment. If you leave a deposit, take the vehicle and change your mind before completing the paperwork, you do not have to buy the car. In this situation, you'll likely lose a portion of your deposit. The dealer can charge you for putting mileage on the vehicle's odometer and for its cleaning fees.

Pursuing the Return of Your Deposit

If your dealer refuses to return your deposit, call the proper authorities to initiate a complaint. Before initiating the complaint, let the dealer know you plan to do so. Many dealers would prefer to avoid this. Call your state attorney general's office or the motor vehicles department to begin the process. In most cases, the dealer will receive a phone call. The proper state authorities can help you back out of a car deal or get your deposit back, if you are eligible.

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Can I Buy Back a Totaled Car From the Lien Holder?

Depending on the extent of the damage and your vehicle's value, a car accident could result in your insurance company "totaling" the car. Insurance companies typically total out vehicles that would cost more to repair than to replace. In the case of older cars or cheaper vehicle models, your insurance company could total your car when the vehicle itself sustained minor damage and is still functional. Should this occur, you can negotiate with your insurance provider and attempt to buy back your car.

Legal Owner

When an insurance company totals your car, the company sends you a check for the car's estimated value minus any wear and tear or previous damage. If you still owe money to your auto lender, it's your responsibility to use the insurance money to pay off the damaged vehicle. Unfortunately, paying off the car doesn't mean that you'll automatically get your damaged vehicle back. The lien holder has the title to your car, but the insurance company has the actual vehicle.

Insurance Company Negotiations

If you want to keep your car after an accident rather than taking the money the insurance company provides to pay off your loan or put a down payment on a new car, contact your insurance provider as soon as possible and explain your desire to keep your car. The insurance company may sell you your vehicle for the price it would have otherwise charged a salvage yard. Although many consumers have successfully bought back their totaled vehicles from the insurance company, your insurance provider has the right to refuse to sell you your car back after an accident.

Keeping the Car

In order to avoid the possibility that your insurance company will refuse your request to buy back your car, consider working with your insurance provider to avoid having your vehicle classified as a total loss. Insurance company policies vary, but if you find a repair shop that can fix your car for less than the replacement value, your insurance company may rethink classifying the vehicle as a loss. If you insure all of your vehicles and your home with the same insurance company, threatening to switch providers could give your insurance company the incentive it needs to work with you and repair your car, rather than totaling it.

Buying at Auction

If your insurance company has already totaled your car and refuses to sell it to you, it will often run the car through an auction. Consumers and car dealers can then bid on the car in an attempt to purchase it. Ask your insurance provider where and when it plans to auction the car. Keep in mind, however, that while no law prevents you from buying back your previously totaled car at auction, not all car auctions are open to the public. Some auctions are for dealers only. Should you succeed in purchasing your car at auction, your insurance company is not responsible for the vehicle's repair costs. You must bear the burden of repairs on your own.

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Do I Need to Pay Back a Car If It Was Repossessed?

Having your car repossessed is a result of not paying loan or lease. You may have lost your job or had some other financial hardship that prevented you from keeping your account current. However, when you default on your auto loan, you risk repossession by the lender. Because the car was used as collateral, it is taken as payment, but you still may be responsible for a portion of the loan.

Seizure

Your car can be repossessed if you miss just one car payment. However, most lenders will contact you first to try to bring your account up-to-date. If you are unsuccessful at paying the amount you owe plus any fees or penalties, then your car can be taken from the street, a parking lot or your property. However, most states don't allow repossession from your garage if the door is shut. Also, you cannot be threatened in any way while the car is being taken.

Auction

Your lender may keep the car as full payment of your debt and then you will not have to pay back your loan. However, if your car is sold at auction and doesn't sell for the amount of your loan, you can be held responsible to pay the difference. You will be notified of the date of the auction so that you have an opportunity to buy the car back at that time. Whether before or during the auction, if you want to purchase your vehicle, you may be required to pay your default amount, the balance of the loan and any other charges the lender has accumulated because of the repossession.

Possessions

If you have personal possessions in your car when it is repossessed, you are entitled to collect them. Your lender must keep your property and care for it for a reasonable amount of time to give you an opportunity to pick it up or have the items mailed to you. If you placed improvements in your car, such as a new stereo, it generally is not considered your personal property if it is attached to the vehicle.

Options

Since a car repossession can stay on your credit report and lower your score for seven years, contact your lender as soon as you know that you can't make a payment. If you carry a high interest rate, refinance the loan if you qualify. Alternatively, ask your current lender for a loan modification to change the terms so they are affordable. You can try to sell the vehicle, if you think it will net you close to the loan amount you owe. Otherwise, ask the creditor what happens if you give the car back voluntarily. Whether you offer the car to the creditor or it is sold at auction after a repossession, ask the lender to waive the deficiency you continue to owe if the sale price did not satisfy the loan amount.

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How to Cancel a Lease on a New Car

Canceling a lease agreement on a new vehicle can impact your finances and credit rating. However, unexpected events do occur; some people endure financial hardships shortly after signing a lease agreement. Fortunately, there are techniques to help you get rid of a newly leased vehicle.

Instructions

1

Give the car back. Return a newly leased automobile to the dealership within three business days to cancel the agreement without damaging your credit rating. Lease contracts vary. Read the conditions of your agreement to see if you're eligible for this option.

2

Find a buyer. Speak with your finance company and ask for the pay-off balance. Place ads in your local newspaper and find a buyer for the leased car.

3

Do a lease trade. Read your lease contract to see if the finance company allows lease trades or assumptions. Place a detailed ad on websites such as Leasetrader.com to find someone to take over the lease.

4

Return the car and accept the consequences. If unable to sell or transfer the lease, bring the car back to the dealership and deal with the financial or credit consequences. Expect the finance company to sue for breach of contract, wherein you're expected to pay off the lease balance.

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Alabama Laws for Car Title Loans

Car title loans are short-term loans, generally at a relatively high rate of interest. Each state has the authority to enact consumer protection laws governing the lending practices of car title lenders. In Alabama, since the general assembly does not view car title lenders as official financial lending institutions, the state imposes few restrictions on them. Instead, car title lenders are pawnbrokers, according to Alabama law.

Alabama Pawn Shop Act

To legally conduct business in Alabama as a title pawn lender, the Alabama Pawn Shop Act requires businesses apply for a license to do so. Since car title lenders are nonrecourse lenders, they fall under the Alabama Pawn Shop Act. As compared to a recourse lender, the pawn broker does not have a legal right to demand repayment of the original vehicle loan. Instead, its only recourse is to take possession of the vehicle when the borrower does not repay his car title loan.

Legality

Under Alabama law, as long as car title lenders obtain a pawn broker's license pursuant to the Alabama Pawn Shop Act, they may conduct business providing car title loans to consumers. However, they must comply with the banking department's rules and state's financing laws. The Pawn Shop Act does not apply to vehicle loan lenders or banks that provide financing to vehicles. Instead, these entities are subject to the Alabama Consumer Credit Act ("Mini Code"), the Alabama Mortgage Brokers Licensing Act or the Alabama Small Loan Act.

Lending Terms

Pawn transactions in Alabama must be for one month, and the maximum interest that pawnshop brokers can charge is 25 percent monthly. According to Section 5 of the Alabama Code, the Pawnshop Act requires pawnshops to comply with the state's interest and finance charge limits. Furthermore, the banking department has the legal authority to conduct on-site inspections of a pawnshop's records to ensure it is complying with the state's consumer protection laws.

Considerations

Since state laws can frequently change, do not use this information as a substitute for legal advice. Seek advice through an attorney licensed to practice law in your state.

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What Are the Rights of a Co-Signer on an Auto Loan?

The co-signer on a car loan shares an obligation with the primary borrower to repay the loan. In most instances a co-signer has no ownership rights to the vehicle. Therefore, if you are thinking of co-signing on a car loan you should first add your name to the title of the vehicle being financed.

Onwer Versus Signer

When you take out a secured loan such as a vehicle loan or a home loan, you must sign the contract both as an owner and as a borrower. As an owner you sign your consent for the lender to place a lien on your property. In your capacity as the borrower you agree to repay the loan. Not all of the property owners have to sign the loan as borrowers, and not all of the borrowers have to have an ownership stake in the collateral that secures the loan.

Title

If you feel uncomfortable about agreeing to sign for a loan against a car that you do not own, you must go with the owner of the car to the Department of Motor Vehicles and ask to add you as an owner of the vehicle. The DMV transfers ownership of the car from the current owner to the current owner and you. You now have an equal ownership stake in the car, and depending on your state's laws, this may mean that you can assume full control of the car if the other owner refuses to make loan payments.

Credit

People with poor credit are often unable to obtain car loans but they can get around this issue by asking someone with good credit to co-sign on their loan applications. However, once you sign on a loan, that loan account will appear on your credit report. This means that when you apply for future credit, lenders will assume that you are already making this loan payment and may not agree to provide you with any more credit unless you have a very high income level. Taking on the extra debt also increases your overall debt level and causes a drop in your credit score.

Repossession

If you co-sign on a loan for a car that you do not own, the bank can repossess that car if you and the car's owner fail to make the monthly loan payments. However, although the lender cannot repossess your own car, the lender can report the missed loan payments to the credit bureaus, and a record of these missed payments and the repossession will remain on your credit report for seven years. A low credit score can make it hard for your to obtain future credit and may even prevent you from landing a job in some industries.

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