Having your car repossessed or surrendering it voluntarily is seen as a major negative event by lenders. They'll view you as high-risk. Expect your credit score to take a big hit, maybe over 100 points or more. That makes getting approved for financing in the future much harder.
Selling, trading in, refinancing, or negotiating a payment adjustment are usually better options to get out of a car loan without negatively impacting your credit score than running afoul of a knock to your credit.
Handing a car back is your legal right, so has no effect on your credit rating.
If you return the car to the bank, they'll simply market up as a repossession on your credit record, sell the car, pay off the balance of your loan, and in the matter.
One way to get out of a car loan is to sell the vehicle privately. If you're not upside down on the loan, meaning the car is more valuable than what you currently owe on it, you can use the proceeds of the sale to pay off the current loan in full. Another term for an upside-down car loan is negative equity.
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.
Many borrowers refinance to get a lower monthly payment, and often, look for another lender to refinance with. Trade-in or sell the car – To get out of an auto loan contract without ruining your credit, you could sell the vehicle and use the proceeds to pay off your lender.
Voluntary car repossession is only a slightly better option than involuntary repossession. You may be a bit more prepared and have some control over when you surrender your car if it's voluntary. Avoiding some of the extra fees that can come with involuntary repossession can be helpful, too.
If you financed a vehicle purchase through the dealer, they may have specific rules about when you can and can't return a car. Leasing agreements may include clauses for returning a vehicle early, though you may pay a penalty to do so. Returning a car you financed may have negative impacts on your credit score.
Whether your new financing payment is more than you originally set aside in your budget or your financial situation has changed and your paycheck is spread thinner than expected, unfortunately, being unable to afford your payments is not typically considered an acceptable reason to return a car to the dealership.
Voluntary surrender counts as a derogatory or negative mark and will stay on your credit reports for up to seven years. This stain on your credit reports might prevent you from being approved for new credit and your terms, like interest rates, will likely be higher.
Note: If you're selling a car with an active loan, you're still the one responsible for paying it off, so the remaining balance on the loan will likely be subtracted from the price the dealer offers you. So if you owe more than what the dealer offers, you'll need to pay the difference to the lienholder.
Does selling a financed car hurt your credit? Selling a financed car to a private buyer or dealership likely won't hurt your credit. However, if you have negative equity, you might need to refinance your auto loan or take out a personal loan to cover the difference between your car's value and what's left on your loan.
Voluntary Repossession
This involves surrendering the car to the lender. They then sell the car and use the proceeds to pay off the remaining loan balance. We can negotiate with the lender on your behalf to minimize damage to your credit score during this process.
If you become delinquent or late on the payment by more than 30 days, or if you don't have adequate insurance, the lender has the right to retrieve or repossess their property (your car).
Buyer's remorse is a difficult feeling, but once the paperwork is signed, your ability to back out of a car purchase is very limited. Returning a car after the purchase is generally not an option, as most dealerships do not have a return policy once the sale is finalized.
Negotiate and finalize: You can negotiate with the dealer on the price of the new car, and on how much they will offer you for your trade-in. If the trade-in offer won't be enough to pay off your current loan, the dealer or lender may roll the difference into a new loan.
Returning your car to the lender before you are finished paying it off is called a voluntary surrender or voluntary repossession. In terms of your credit, a voluntary surrender is considered derogatory and will have a substantially negative impact on your scores, so it should be a last resort.
Estimates vary, but you can expect a voluntary repossession to lower your credit score by 50-150 points. How big of a drop you will see depends on factors such as your prior credit history and how many payments you made before the repossession.
You'll need to pay the loan in full before the lender will release the lien and title—allowing you to resell the vehicle to another party. If you're planning to sell a vehicle that you still owe money on, talk to your lender first to find out how to proceed.
A voluntary surrender is turning your vehicle over to the lender because you're unable to make your auto loan payments—and it will hurt your credit. However, voluntary surrenders may not look as bad on a credit report as a repossession, so they may be a better option if offered.