Yes, you will likely still owe money if you voluntarily surrender your car. You are responsible for the "deficiency balance"—the difference between your total loan amount and the price the lender gets for selling the car at auction. While it avoids repo fees, it still damages credit for seven years.
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.”
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.
Voluntary surrender is almost always better than a full repossession. The negative mark still appears on your credit report, but surrendering usually reduces fees, avoids the tow charges, and shows good faith. It can also make the process smoother and less stressful.
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.
In a Nutshell
Sometimes voluntarily returning your car is better than waiting for the lender to repossess the car, as it may reduce repossession costs, give you more control over the process, and help you avoid the embarrassment of an unexpected repossession.
You could get out of your current car loan by refinancing, selling your car or by giving it back to your lender as a voluntary repossession. Voluntarily repossessions negatively impact your credit score for up to seven years. Refinancing or selling it might be your best options.
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.
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.
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.
If you have negative equity in a car, consider these options:
Work with Your Lender
No matter your situation, it's wise to contact your lender as soon as possible if you're struggling with payments. Your lender might allow you to miss a payment or temporarily reduce what you owe each month. If you're only facing short-term difficulties, this can help you get back on track.
Quick Answer. If you need to get out of a car loan you can't afford, options to consider include negotiating with your lender, refinancing your loan, selling the car or voluntarily surrendering it to avoid repossession.
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.
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How Voluntary Repossession Works
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.
Key Takeaways
A repossession typically remains on your credit report for seven years. It's tough to remove a legitimate repo from your credit report, but you may be able to avoid repossession by negotiating with your creditor before missing a payment.
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.
A voluntary surrender means 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.
However, the lender has absolutely no obligation to do so. Even though you want to surrender the vehicle the lender won't pick it up.
Before surrendering, you should consult with an experienced California criminal defense attorney. A knowledgeable attorney will provide guidance to ensure you're fully prepared and informed about the process ahead, making you feel guided and supported.
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A "609 dispute letter," often mischaracterized as a means of getting negative information removed from a credit report, is a name sometimes applied to a formal request for disclosure of credit information compiled by one of the national credit bureaus (Experian, TransUnion or Equifax).