What Is a Voluntary Repossession?

What Is a Voluntary Repossession?

Unlike an involuntary repossession, voluntary repossession allows borrowers to contact their lender to schedule a time to return the vehicle if they are unable to continue making payments. It offers borrowers more time and control to arrange for other transportation as opposed to the lender sending a tow truck to get the vehicle without warning. 

Repossession vs. Voluntary Repossession

If you stop making payments and default on your auto loan, the lender has the right to repossess your vehicle. However, if you know you’re facing a repossession, you can voluntarily surrender the car by notifying the lender that you can’t make the payments and returning it.

In most cases, you’re notified of a repossession. However, some lenders can take your vehicle after one missed payment and give no notice – it all depends on what’s in your loan contract and your state’s laws.

The method a lender uses to repossess your car can vary, as well. Some lenders send a recovery company to hook the vehicle up to a tow truck, and some now have the ability to remotely disable your car from starting so they can locate it and pick it up later. Whatever method they use, it’s probably not going to revolve around your personal schedule.

With a voluntary surrender, you’re giving up the vehicle on your own terms, and you no longer run the risk of the lender unexpectedly towing it while you’re at work or from your house. You can drop the car off at a specified location or arrange to have it picked up. You can also avoid a number of fees that are associated with a repossession, such as towing. A voluntary repossession gives you the opportunity to remove your personal possessions and plan your future transportation needs.

Your Credit Score After Repossession

When you surrender your car, it shows up as a surrender on your credit reports. According to Experian, the impact of a repossession on your credit score may be slightly less if you voluntarily surrender the vehicle.

A repossession can have more impact on your credit score in a few ways. When a lender repossesses a car, they usually hire a recovery company to take it and pay storage fees while it waits to be sold. The lender then charges the borrower for these items. If you don’t pay them, you run the risk of the account being sent to collections, which harms your credit score even more.

Once the vehicle is repossessed, the lender sells it (usually at auction), and that money goes toward paying off the balance of your loan. If there’s still a balance after the vehicle is sold – called a deficiency balance – you must pay that amount to the lender. If you don’t, the lender can send the account to collections and even garnish your wages, and this is also reflected on your credit reports.

By surrendering your car yourself, you can avoid having to pay additional fees associated with repossession, which can be expensive. Typically, a repo company charges between $150 and $500 for towing and recovery and daily storage ($20 to $75 per day), along with other administrative fees.

Getting a Car Loan After a Repossession

Following a repossession, most lenders require borrowers to wait at least 12 months before they seek new auto financing, and if more than one repossession is on your credit report, it could be extended to 24 months.  

A repossession and a voluntary surrender both negatively impact your credit score for seven years. This, in turn, can affect your ability to get a future loan. With either on your credit report, this means that you’re likely to be seen as a high risk to lenders and charged higher interest rates on loans.

If you have bad credit due to a repossession or voluntary surrender and are having issues getting approved for a car loan, we want to help. Auto Credit Express has contacted dealerships across the country with subprime financing options.

These subprime lenders work with borrowers with unique credit situations and consider more than just your credit score for approval. We want to match you with a special finance dealer in your local area, so fill out our free auto loan request form to get started!