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.
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”.
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.
Is a surrender better than a repo? A voluntary surrender is generally better than a repossession because it demonstrates that the borrower took the initiative to return the vehicle and resolve the issue. This proactive approach may be looked upon more favorably by future lenders compared to a forced repossession.
Does voluntary repossession hurt your credit? Voluntary surrender counts as a derogatory or negative mark and will stay on your credit reports for up to seven years.
The lender will resell the vehicle, and the proceeds will go toward the balance you still owe on the loan. If there is still a balance remaining after the sale and you don't pay it, it could be turned over to a collection agency. This may result in a collection account being added to your credit history.
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.
In some instances, a dealer may accept the return of a financed vehicle if it's necessary to avoid repossession. What's important to keep in mind here is that a vehicle's value depreciates quickly. Even after just a few months of ownership, you may owe more on the car than it's currently worth.
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.
If your lender can't locate your vehicle to do a "self-help" repossession, they can still sue you for the vehicle. This will involve a small claims case, where the judge will order you to give the car to the lender. You might even be compelled to Court to provide testimony about the location of the vehicle.
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.
You can't remove a repossession from your credit report if the information is accurate. In this scenario, you'll need to wait until seven years after your first missed payment for the derogatory mark to fall off on its own.
Consider a Voluntary Repossession
When you agree to a voluntary repossession, you start by informing the lender that you can't make the monthly payments anymore. The lender will provide a time and place to meet for surrender. Keep a record of when and where you dropped the vehicle off and who took possession of it.
VantageScore and FICO scores range from 300 to 850, making 300 the lowest credit score possible. While credit scores as low as 300 are possible, most consumers have scores above 700.
Voluntarily Surrender the Car
A voluntary surrender allows you to return the vehicle to your lender on your terms, and while it can damage your credit, it won't have as big an impact as a repossession. You'll also be able to avoid certain repossession-related costs, which lenders may choose to add to what you owe.
If you're anywhere from 30-90 days late, your car could get repossessed. The Federal Reserve Board says almost 8 million Americans are three months behind on their auto loans, and that should be a warning sign for working class consumers and those with a low income, especially if you're in the 25-35 age bracket.
Voluntary repossession can have a significant negative impact on your credit score. This record will stay on your credit report for seven years, potentially making it harder for you to get approved for new credit during this period.
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.
You can renegotiate, refinance or sell your vehicle to get out of a car loan you can't afford. Refinancing can be a good option if your credit score has improved since you initially took out the loan. When trying to exit a lease early, be aware of potential fees and consider transferring the lease to someone else.
A repossession typically stays on your credit report for up to seven years, so a big part of restoring your credit afterward is just waiting. But you can also be proactive in restoring your credit by paying your bills on time and working on paying off other debt.
Voluntarily surrendering your vehicle will have a substantially negative impact on your credit scores because it means that you did not fulfill the original loan agreement.
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.
Voluntary surrender – refers to the mitigating circumstance under the Revised Penal Code wherein the accused voluntarily surrender to a person in authority or the latter's agents, or voluntarily confessed to his/her guilt before the court prior to the presentation of the evidence for the prosecution.