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.
Although voluntary repossession is a better option than having your vehicle repossessed against your will, it will negatively impact your credit score and history. For that reason, you should first consider other ways to make payments or give up your vehicle.
How Much Does a Voluntary Repossession Affect Your Credit? 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 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.
Does selling a financed car hurt your credit? If you owe more than your car is worth, you could hurt your credit by taking out a personal loan to pay your car loan off. But if you have positive equity, the sale will pay for the entire loan balance and your credit score won't be negatively affected.
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 is a losing proposition, not only because it's unlikely to provide any tangible benefit to your credit score or wallet, but also because it might mean sacrificing your ride to work –jeopardizing your ability to pay other bills. Plus, you likely have better options that have yet to be exhausted.
You can sell your car to get rid of it without hurting your credit. This is easiest if the value of your car is close to or above the balance of your loan. You could also transfer your current loan to another person if they're approved for financing and agree to take it over.
The loan needs to be paid in full
The debt left over is still your responsibility. For example, let's say you bought a car with a $25,000 loan. A year later you returned it. There's still $23,000 left on the loan.
You may be able to get out of an upside-down car loan by paying it off in a lump sum or with extra payments, refinancing your car loan, selling your vehicle or surrendering it to your lender.
If the account in question is closed due to charge-off, repossession or voluntary surrender, it will remain part of your credit report for seven years from the original missed payment that led up to that derogatory status. That date is referred to as the original delinquency date.
At-A-Glance. A repo stays on your credit report for seven years. Lenders can legally repossess your property if you default on what you owe. It's possible to take steps to avert a repo, such as negotiating payment terms or refinancing the loan.
There may be other factors involved but when you pay off a car, you may see your credit score drop because the account closed.
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.
It's possible to remove a repossession from your credit report, but you don't have many options. You can either negotiate with the lender or file a dispute. That's it. You can only file a dispute if something is inaccurate.
Often, a bank or repossession company will let you get your car back if you pay back the loan in full, along with all the repossession costs, before it's sold at auction. You can sometimes reinstate the loan and work out a new payment plan, too.
Returning a financed car before the end of the loan term can have a negative impact on your credit score. It can be seen as a default or breach of the loan agreement, and it may lower your creditworthiness in the eyes of future lenders. This could stay on your credit history for up to seven years.
In most instances, yes, you can trade in a car with a loan, and some dealers might roll your remaining balance into a new loan. But trading in your car doesn't make your loan disappear. You will still have to pay off the remaining loan balance that your trade-in amount doesn't cover.
Once you're in default, the lender may be able to repossess your car anytime, without notice, and come onto your property to take it. If your car is repossessed, your lender will try to sell it at an auction or in a private sale to recover their money. If they sell it at an auction, you may be able to buy it back.
When a loan defaults, it's sent to a debt collection agency whose job is to collect the unpaid funds from you. A loan default can drastically reduce your credit score, impact your future eligibility for credit and even lead to the lender seizing your personal property.
So, if your car's worth $10,000 but your loan balance is $12,000, then you're $2,000 upside-down. If you want to get rid of your car, you'll not only have to sell or trade it in, but you'll also have to pay the lender $2,000. This is also known as having negative equity.
Depending on your lender, you may be able to negotiate a payoff amount for your car loan. In addition to the lender's policies, other factors that can impact your ability to negotiate include whether you're current on your loan payments, how much cash you have to offer and the condition of your vehicle.
By voluntarily returning the vehicle, you are taking some responsibility for the debt you owe. For this reason, lenders may consider a voluntary surrender to be slightly less negative than a repossession.
Voluntary repossession can make obtaining future loans more difficult. There is no difference on your credit between a voluntary repossession and an involuntary one. Future lenders may see this action as a risk factor, making them more reluctant to lend to you or offer you higher interest rates.
How long does CapitalOne take to repossess my car? Repossession law varies slightly from state to state and range from 3 to 5 months after you stopped making payments on your CapitalOne loan.