But there's a subtle difference that future lenders notice. A voluntary surrender shows up as just that—”voluntary surrender.” A repo shows as “repossession.” To a lender looking at your credit report two years from now, voluntary surrender suggests you at least tried to handle your responsibilities.
The name makes it sound less severe, but a voluntary repossession is essentially the same as an involuntary one as far as your finances go. You'll still have to pay for the costs of the auction. You may still face a deficiency, a collection lawsuit, and wage garnishment.
There is not much difference between a voluntary repossession and an involuntary repossession from a credit standpoint. A voluntary repo is going to look better to a future lender that will consider your for another loan down the road.
Voluntarily returning the vehicle, however, shows that you took responsibility and worked with the lender rather than forcing it to pursue a repossession. For this reason, lenders may consider a voluntary surrender to be slightly less negative than a repossession.
Voluntary repossession means you contact your lender, tell them you can't afford the payments, and arrange to return the vehicle. It's different from involuntary repossession, where the lender sends a repo company to take your car without warning.
Factors That Determine Credit Scores
Having the right to voluntary termination can offer peace of mind if your circumstances change while you're in the middle of a finance agreement, or if your car no longer fits into your lifestyle. Voluntary termination applies to both Hire Purchase (HP) and Personal Contract Purchase (PCP) car finance.
Although you did not quite get to the point of involuntary repossession, your voluntary repossession might stay on your credit report for up to seven years. In addition to being visible on your credit report, a voluntary repossession can cause your credit score to drop dramatically, on average, by about 100 points.
Voluntary repossession can reduce the overall financial burden you face compared to waiting for the lender to repossess the car on their own. One major benefit is that you avoid being charged for the lender's repossession costs, such as towing and storage fees.
You may owe money
After surrendering a vehicle, you could stop financing it but might still owe money to the lender. The new amount due is normally the difference between the outstanding loan balance and what the lender receives from selling the vehicle. This is called the “deficiency.”
Selling your vehicle will get you out of your loan while preventing damage to your credit score, but only if you're able to sell the car for the balance of the loan or pay the difference yourself.
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A voluntary surrender is slightly better than a repossession because it indicates to lenders that you're cooperative and accepting responsibility. However, it's still considered defaulting on your debt, and can make lenders reluctant to work with you in the future.
A voluntary repossession can stay on your credit report for seven years. This is true of both voluntary and involuntary repossession. Both voluntary and involuntary repossession can negatively impact your credit score for up to seven years; however, the impact will lessen over time.
If you agree to a “voluntary repossession,” you might pay less in fees. But even if you return the car voluntarily, you're still responsible for paying the difference between what you owe on your contract and what your lender gets for selling the car. The lender might call that the “deficiency”.
If you exercise voluntary termination, you may need to pay any outstanding balance up to the 50% threshold of the total amount payable under the agreement. Other fees, such as vehicle damage beyond normal wear and tear, may also apply.
How to rebuild credit after a repossession
Get quotes and compare to find the better option. Gap insurance doesn't cover missed or late payment fees, repossessions, extended warranty costs or car repairs…just loan balances.
They sold it at auction. Why are they suing me for the balance? The short answer is that you signed a contract to pay for a loan, and you are responsible regardless of whether you have the car or not.
If you can't afford your car payments, you can give the car back to your car loan lender in a "voluntary repossession." But think carefully before you do this—you might still owe the lender money. If you can't afford your car payments, you can give the vehicle back to your car loan lender.
Securing a car loan is possible with a repossession on your credit report. However, you may have a hard time finding a lender willing to work with you. If you do manage to get approved, the terms can be expensive.
How Negative Equity Works With a Trade-In. Some car dealers say you won't be responsible for the remaining balance on your old car loan when you trade in your old car. But that might not be true. Instead, some dealers just roll over the negative equity into your new car loan, so you still end up paying it.
Cons of Leasing a Vehicle
Each can appear on your report as a separate entry. Repossessions, collections and court judgments can remain on your credit report for up to seven years, reading as a derogatory mark and dropping your credit score by 100 points.