Consumer Car Buying Advice Blog

We respond to a recent question regarding returning a Toyota Camry to the dealer and the repercussions to your credit score and credit report.

A simple question

At Auto Credit Express, we recently received the following question from one of our readers:

“I have a Toyota Camry and with all the recalls I do not feel safe driving the car, even if they “fix” the problems. I went to try to trade it, and because it’s not a year old and has all the recalls, the car is worth $10,000 less than what I owe. Looking at my credit, I can finance a second car without trading. Someone told me that I should finance a new car and then turn in the Camry to Toyota. He said that it would lower my credit score by 100 points, but what else could happen in this case? He said that I could get a judgment on my credit, but I didn’t have to pay the judgment… is this true?

Thanks!”

Turning the tables

Here at Auto Credit Express, we normally deal with customers who are hoping to improve their credit scores, not the other way around, so this question took us a bit by surprise. After all, if you have really good credit (anyone who has currently financed a new Toyota Camry a year ago through what we are assuming is Toyota Financial Services must have a FICO score of at least 720), why would you want to trash it?

The answer, obviously, is because of the spate of recent recalls on the Toyota Camry. So let’s look at that first.

Camry recall

The Camry recall involves two separate issues: floor mats and sticking accelerator pedals. Here is what Toyota Motor Sales president and COO Jim Lentz had to say about both in the February 15th issue of USA Today:

“We have investigated this issue, and have identified two specific causes that we can address and are addressing with our recalls — pedal entrapment caused by floor mats and sticking accelerator pedals. In the case of sticking pedals, we were first able to uncover a defect trend in the U.S. late last October and moved quickly to pinpoint the cause and establish the fix. Dealers are now making the repairs for our customers at a rate of roughly 50,000 vehicles a day.”

He then makes the following statement:

“Still, it is worth putting this issue in context. Confirmed incidents of unintended acceleration are a very small fraction of vehicles on the road, and Toyota’s track record for reliability remains strong.”

Toyota has also requested that those customers who still have questions and concerns should contact the Toyota Customer Experience Center at 1-800-331-4331.
The Toyota Customer Experience Center hours are:
Mon – Fri, 5:00 am – 6:00 pm PST
Sat, 7:00 am – 4:00 pm PST

Don’t turn in the Camry

As far as “turning in the Camry” is concerned, we’re afraid that this person’s friend was a bit misinformed. The fact of the matter is, the higher your credit score, the more it will drop if a negative item appears on your credit report.

According to the myFICO web site, someone with a credit score of 780 can expect their credit score to drop nearly 160 points as the result of a foreclosure – which is the homeowner equivalent of an automotive repossession. And that is just the beginning.

Once the repossession occurs, the lender will sell the Camry at auction and, at that time, the deficiency balance may very well equal the $10,000 in negative equity that the dealer’s appraisal indicated. If that isn’t paid, the lender can then go to court and obtain a judgment and, following that, an order of garnishment.

The civil judgment will also appear on your credit report with a corresponding drop in your credit score (myFICO estimates a 120 point drop for a 780 score for settling a credit card debt, and a civil judgment is sure to affect a credit score more than a debt settlement).

In all, this means that a beginning FICO score of 780 could now be in the 500 range and, in addition, your employer could be receiving a letter from the court requiring them to garnish your wages.

The Bottom Line

Even if you can afford to buy a second car and turn in the Toyota, don’t do it. Call it what you will (such as throwing the baby out with the bath water), but it would be, literally, financial suicide to do a voluntary repossession on a Toyota Camry simply because of the current recall situation.

For customers who feel that strongly, there are a number of law firms lining up for class action suits against the company – a route far more “fiscally responsible” than repossession.

Tags: bankruptcy, chrysler employee discount, credit monitoring, driver license, ford, gm, nada, Used Cars

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