MORE LIKE THISThe Ultimate Credit Score Guideearn moneyPay off debtsPay your billsCar loanPersonal economy
If you can no longer afford your car and are at risk of losing it to repossession, you can make a voluntary repossession or voluntary surrender and return the vehicle to the lender before it is repossessed.
Your credit will still be affected, but it may be slightly less than with an involuntary repossession - and you can avoid some of the costs associated with an involuntary repossession.
How voluntary repossession works
Voluntary surrender of a car involves informing your lender that you can no longer make payments and that you intend to return the car. Agree on a time and place and record when, where and to whom you delivered it.
However, that does not mean that you have finished paying, because you cannot return a financed car without penalty.
The creditor will resell the vehicle and you will receive a statement describing the sale. Just like involuntarytakeover, you'll have to pay the difference between what the car was sold for and what you owe on the loan, or the "deficit balance." You may also have to pay fees related to the car loan, such as late payment fees.
If you don't pay, your lender may turn the remaining balance over to a collection agency. Adding onecollection account for your credit reportswill make the credit damage resulting from the seizure worse.
Receive notifications about score changes
View your free score anytime, get notified when it changes, and build it up with personalized insights.
How voluntary repossession affects your credit and finances
Voluntary surrender and repossession aredefault on the loan, which stays on youcredit reportsfor seven years. That type of negative rating will hurt your scores, especially your car-specific credit scores. The next time you apply for a car loan, you will likely be considered high risk and charged high interest rates.
Even if a voluntary foreclosure appears on your credit reports, a lender who looks closely will see that you took a proactive approach to resolving the account.
If you need to pay a deficiency balance, you need to know the best way to do itmanage your debtsand what to do when it endsin collections.
While you wait for a voluntary repossession to disappear from your credit report, here are some ways to do itrepair your credit:
Pay your bills and existing lines of credit on time. It's okay if you can only afford the minimum payment amount.
Keep your credit card balance low.
Pay off your other debts as much as possible.
How to prevent voluntary repossession
If you're struggling to make your car payments, there may be alternatives to voluntary repossession. Here are some other options:
Talk to your lender.See if you qualify for options that can help you keep your car, such as a payment plan or more time to pay. Ideally, you want to do this before you fall too far behind on payments.
Transfer your car loans.It may be possible to let someone else, such as a parent, take responsibility for your car by transferring the loan to them. This way you can still use the car and pay your parents (or someone else) back over time. Make sure you check with your lender first to see if this approach is allowed.
Refinance your car loan.If you have good credit, that might be possiblerefinance your car loanto lower interest rates, which can reduce payments and make them more affordable.
Sell your car. Used car prices have been highsince the beginning of the COVID-19 pandemic, so you may be able to sell your car and get enough to fully cover your loan. You might even have money left over to spend on a cheaper car.
Track your credit score with the NerdWallet app
Track your budget, finances and credit - all in one place and completely free.
When voluntary takeover makes sense
A voluntary seizure makes sense if you know yourscar payments are unaffordable, an involuntary seizure seems inevitable and other options won't work for you.
If you choose to voluntarily surrender your vehicle, you can avoid the more expensive fees imposed during an involuntary seizure, such as towing and storage fees.
Making an appointment to return your car takes the worry out of worrying about when and where a repo team will show up to take delivery of your car.
