If you can't make your car payments, there are some clear advantages to voluntary surrender compared with involuntary repossession: You can avoid some of the penalties and fees imposed during an involuntary surrender, like towing and storage fees.
Falling behind on car payments affects your credit, and this can make it harder or more expensive to get loans in the future. A repossession could also stay on your credit reports for up to seven years. Repossession can also mean paying higher insurance rates.
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.
If you voluntarily surrender your car, then you won't be charged for the lender's repossession costs. Generally, this means that the deficiency judgment against you will be lower if you voluntarily give the car back. Another reason to choose voluntary repossession is that it might look better on your credit report.
While repossession doesn't erase your debt, options like negotiating with your lender or filing for Chapter 7 bankruptcy can help you manage or eliminate the remaining balance.
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.
A voluntary repossession will remain on your credit report for up to seven years, but it's better than having multiple missed car payments and an involuntary repossession. Unfortunately, while the voluntary repossession remains on your credit report, you'll have a harder time obtaining a new auto loan.
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.
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.
If your car has a tracker, repo agents can pinpoint its exact location at any time, which makes repossession faster and easier for them. License plate scanners are another tool repo agents use. These devices quickly scan license plates while cars drive through neighborhoods, parking lots, or other public spaces.
Repossession agents can't threaten you, use physical force, or harm you in any way. This is a breach of the peace and is not allowed. Repo agents are not allowed to enter your home without permission. They must comply if they enter your home and you ask them to leave.
Another option is to give up the vehicle to the lender voluntarily rather than going through the repossession process. The lender may find this option appealing because it avoids the costs of repossession, and it may agree to reduce or eliminate the deficiency balance on the loan.
Surrender demands trust—in yourself, in others, and in the potential for goodness in all people and situations. Letting go of negative memories and forgiving those who have hurt you builds your own trust in your worthiness, as well as forges trust in you from others.
Higher the period of holding, higher the percentage you get as surrender value. Converting it to paid-up at this stage will cause you further loss when you factor in inflation. The sum you receive at the maturity of the policy may have no significant value at that time.
A car repossession can significantly damage your credit score, potentially causing a drop of up to 100 points or more depending on your overall credit history. It remains on your credit report for up to seven years, impacting your ability to secure favorable financing terms in the future.
Voluntarily Surrender the Car
That said, if there's a deficiency balance—your loan balance minus what the lender received for your car at auction plus any additional fees—you'll need to pay it. If you can't, the lender may send the remaining debt to collections, which can damage your credit further.
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.
Deciding Between Voluntary and Involuntary Repossession
In terms of your credit, voluntary repossession can be the better option if you communicate and cooperate with your lender early on. In most cases, lenders would rather work with you than spend the time and money on the repossession process.
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.
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.
They can sue you for the balance you didn't pay for the down payment, but unless it was in the contract they can repossess, the law in CA doesn't allow it. Under California law, a breach of contract occurs when one party fails to fulfill a legal duty the contract created and causes damages for the defendant.
Most of the time, unfortunately, you can't return a financed car. Although there are a few scenarios where it may be possible (more on that below), they are few and far between.