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Advice on Voluntary Surrender of Vehicle - The Bills.com Blog
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Advice on Voluntary Surrender of Vehicle
Monday, Nov 3, 2008
Question: I have a vehicle with a second chance finance company. I was told, as most dealer will in trying to sell you a vehicle, that I could refinance after 18 months. I attempted to do so but learned that the lien holder only reports to one credit bureau. Thus making it almost impossible to obtain a refinance or get another loan. According to the lien holder I have their lowest rate and they will not refinance. They have told me on 3 separate occasions that they are in the process of setting up the ability to report to the other bureaus it has been two years now. My question is how affected would my credit really be if I voluntary surrender this vehicle and am able to obtain another loan with a more reputable company? I am not benefiting from this loan at all. I have a high interest rate, I can not trade the vehicle without being extremely upside down, I still have 3 yrs on this loan and I am paying perfectly without it being reported on my credit rating.
Answer: While I understand your desire to rid yourself of this expensive loan, especially since it is not doing much to improve your credit score, you should probably avoid allowing the vehicle to go into voluntary repossession if possible. The primary problem with repossession is that you will likely be left owing a deficiency balance on your loan, meaning that you may still owe a significant amount of money to the lender even though you no longer have the vehicle. When a vehicle is repossessed, the lender usually sells the car at auction, and applies the amount it receives at auction to the balance you owe on the loan; the borrower is generally responsible for any amount of the loan which is not covered by the auction proceeds. Since lenders usually sell repossessed vehicles for significantly less than the cars are actually worth, borrowers are often left owing thousands of dollars
on vehicles they no longer even own. The fact that you are already upside down on your current loan increases the probability of incurring a deficiency balance if you allow the loan to go into repossession. To learn more about auto loans, I encourage you to visit the Bills.com auto loans page.
In addition to the possibility of owing a deficiency balance, allowing a vehicle to be repossessed will likely have a significantly negative impact on your credit score. Although your lender is only reporting information about its loans to one credit reporting agency currently, you mention in your question that it is working on reporting account histories to all three major credit bureaus—Equifax, Experian, and TransUnion. While a repossession may not have an immediate impact on your overall credit rating due to the creditor’s reporting limitations, the creditor could begin reporting information to the other bureaus at any time, which could cause you serious problems if you need to obtain another loan in the near future.
You mention in your question that you have been trying to refinance your current loan. Your ability to refinance your current loan will depend not only on your payment performance on your current auto loan, but also on your overall credit history. If your credit rating is generally positive, you may be able to find a lender willing to refinance your current loan at a more favorable rate. Many banks will work with consumers to refinance their auto loans, providing them with much better terms
In addition to the possibility of owing a deficiency balance, allowing a vehicle to be repossessed will likely have a significantly negative impact on your credit score. Although your lender is only reporting information about its loans to one credit reporting agency currently, you mention in your question that it is working on reporting account histories to all three major credit bureaus—Equifax, Experian, and TransUnion. While a repossession may not have an immediate impact on your overall credit rating due to the creditor’s reporting limitations, the creditor could begin reporting information to the other bureaus at any time, which could cause you serious problems if you need to obtain another loan in the near future.
You mention in your question that you have been trying to refinance your current loan. Your ability to refinance your current loan will depend not only on your payment performance on your current auto loan, but also on your overall credit history. If your credit rating is generally positive, you may be able to find a lender willing to refinance your current loan at a more favorable rate. Many banks will work with consumers to refinance their auto loans, providing them with much better terms
than those offered by the original lender. I would encourage you to speak with various banks about the possibility of refinancing your current loan, at least to determine if refinancing is an option. Given the current problems in worldwide credit markets, obtaining a new loan may be difficult, especially if your credit history is less than perfect. That said, it never hurts to explore your options; you may find a much more affordable loan is available to you. To learn more about refinancing auto loans , I encourage you to visit Bills.com.
From your question, it seems that the primary reasons that you are considering surrendering your vehicle are the interest rate you are being charged and the fact that the creditor is not reporting the loan to all three major credit bureaus. I honestly do not think that allowing your vehicle to be repossessed is the best way to solve either of these problems. Rather, I think that you should work on improving your credit score using other means so you can refinance your current auto loan. Allowing your current loan to go into repossession will likely only reduce your credit score and make obtaining a better financing for a new vehicle more difficult. To read more about credit scoring, and for advice on how to improve your credit rating, I encourage you to visit the Bills.com credit resources page.
I wish you the best of luck in finding a way to reduce the cost of your current auto loan, and hope that the information I have provided helps you Find. Learn. Save.
Best,
Bill
www.bills.com
From your question, it seems that the primary reasons that you are considering surrendering your vehicle are the interest rate you are being charged and the fact that the creditor is not reporting the loan to all three major credit bureaus. I honestly do not think that allowing your vehicle to be repossessed is the best way to solve either of these problems. Rather, I think that you should work on improving your credit score using other means so you can refinance your current auto loan. Allowing your current loan to go into repossession will likely only reduce your credit score and make obtaining a better financing for a new vehicle more difficult. To read more about credit scoring, and for advice on how to improve your credit rating, I encourage you to visit the Bills.com credit resources page.
I wish you the best of luck in finding a way to reduce the cost of your current auto loan, and hope that the information I have provided helps you Find. Learn. Save.
Best,
Bill
www.bills.com
Also, make sure to get a free financial health check-up with Bills IQ!
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1. Posted by Lourdes on Saturday 21st February 2009 04:31
I am also was thinking of voluntary surrender my second car. I brought a used vehicle for my daughter and the car broke down. I fell behind on payments 300/month= 1200.00 I had to get the car towed to the dealership. I am already behind the eight ball because of falling behind payments and my daughter lost her job and she is unable to pay, Is there any advise for me as my case is very difficult.
2. Posted by Bill on Monday 23rd February 2009 09:03
Lourdes - If the car broke down and you cannot really afford the payments, then you might not have a choice apart from returning it to the dealer. Keep in mind that your responsibility does not end just by returning the car, you will still be responsible to pay the deficiency balance that will arise once the dealership auctions the car. The lender will keep reporting the debt as past due with the credit bureaus, and might even go to court for it. You will need to work out payment plan with them in order to avoid any litigation.
3. Posted by Antonette llantada on Monday 2nd March 2009 10:17
I have a van that I got in september 2008 but I lost my job and could no longer afford to pay the monthly bill. I was told that I could do "voluntary surrender" of the vehicle for them to auction but the problem is, I have nothing to pay them of whatever remaining balance that may incur once the van has been auctioned. Should I go on surrendering the vehicle or should I apply for bankruptcy? Thank you so much for your advice in advance.
4. Posted by Bill on Monday 2nd March 2009 11:04
Bankruptcy is a very serious issue and should only be considered if you are in a dire financial situation. As far as the balance on the voluntary surrender, you will need to speak with the lender to figure out a payment plan that will be affordable to you. I am not saying it will be easy as they will start to demand all the money due at once, but you have to be patient and persistent. Although filing for a bankruptcy could protect you from this creditor's actions, you really need to consult with a bankruptcy attorney to get a proper understanding the process and its affects on your financial future.
5. Posted by Rosanne on Wednesday 15th April 2009 16:47
I have a loan on a car that is 852.00/month! I have lost my job and can no longer afford this. If I voluntarily surrender the car I am told that I will be responbsible for the deficiency however I am unemployed,filed bankruptsy over a yr ago,and have lost my home already to the bank. There is nowhere to get anything. My question is this: Do you happen to know the stature of limitation so far as garnishing my salary once I do have a job. How long before the auto finance company cannot come after me anymore? Also I have another car financed through the same auto company (my son drives this ) Can the finance company repo that car as payment toward the first car? On both of these loan I owe more than the cars are worth. Thanks for any information you may have. I live in NJ if that makes a difference. Thanks again.
6. Posted by Bill on Thursday 16th April 2009 12:29
The Statute of Limitations in the state of New Jersey is 6 years. The time starts ticking once you surrender your vehicle, that means they will have 6 years to try and take action against you till the Statute of Limitations expires.
7. Posted by Jason on Saturday 16th May 2009 09:52
I have a truck payment of 655.00 a month with a very high interest rate. I am getting a divorce and can not afford to pay this anymore since my wife will no longer be around to help with all the other bills (house, power, etc). I have tried to refinance the vehicle with no luck. I have also tried to trade the vehicle in to possibly get a lower payment, even with a co signer to help lower the interest rate. No luck with that either. I owe too much on this vehicle. I have been told the best thing to do is to just purchase another vehicle with my co signer now, and then just let the finance company repo my other truck. What should I do? I live in TN if that helps. Thanks for any info you can give me.
8. Posted by Bill on Monday 18th May 2009 11:48
It is not that simple. If you return the vehicle now, you will still be liable to pay any difference in tha sale value and the loan balance. The creditor can pursue collection action on that balance, such as sue you in court which could lead to wage garnishments. Check for your state laws pertaining to debt collections at http://www.bills.com/collection-laws/.
9. Posted by AZ on Monday 24th August 2009 23:09
I live in AZ. My husband is out of work and has been for months. Every penny of the little savings we had is gone trying to make ends meet. We have 2 vehicle payments. I can not afford to make both payments any longer and am contimplating voluntarily giving up the 2nd vehicle with the higher payment and insurance. The finance Co is no longer making loans and are simply servicing the ones they have until they run out. Due to credit rating, I am unable to find anyone that will refinance the vehicle for me. I know I owe way more than the vehicle is worth - but I simply can not afford to make the payment and insurance on it - any idea of what might happen? Otherwise, they will wind up repo'ing it. Thank you
10. Posted by Bill on Tuesday 25th August 2009 09:33
If you allow the vehicle to be repossessed, the finance company will auction the vehicle. The finance company will subtract the auction price from the balance owed on the loan. If the auction price is greater than the loan balance you will receive a check. If the auction price is less than the loan balance, this is called the deficiency balance, and this is the amount you owe the finance company. From a legal perspective, the deficiency balance is treated like any other liability (such as credit card debt).
11. Posted by Patricia on Monday 21st September 2009 13:48
I am seriously debating surrendering my vehicle. I just filed an ch7 in Nov of 2008 and I was discharged in Feb of 2009. I was never asked by my attorney if I wanted to keep the car, he just told me I was. I didn't think anything of it at the time. I signed a paper that said I would continue making the payments. However, during the last six months, times have gotten harder for me and my mom. Everything costs so much more. I am struggling every month to make this payment. It is $383 and I make about $320 a week. I live with my mom, but I have a 7 year old and I provide entirely for his support. I also help my mom with groceries and utilities. I have tried time and time again for the company to refinance and give me a lower payment-they will not. I owe $10,072.00 on a 2005 Nissan Sentra. It is in fair condition, but it is worth half of what I owe. If I keep the vehicle, I will have over two more years to struggle. I already have bad credit due to the ch7. What should I do? Please help me!
12. Posted by Bill on Monday 21st September 2009 14:21
Here is your problem: If you allow the vehicle to be repossessed, the creditor will sell it at an auction. Cars sold in auctions fetch a price that is less than the retail or owner-seller price, so if the Kelly Blue Book price for your Sentra is, for example, $5000, the auction price will be $4000 or $4500. If you owe $10K, and the auction price is $4K, then you will have a deficiency balance of $6K PLUS the cost of the repossession and other fees that were alluded to in the loan documents. The question is, would you rather struggle with your monthly payment for the next two years and have use of the Sentra, or deal with a $6K+ deficiency balance and need another car?
13. Posted by Rueben on Thursday 29th October 2009 15:01
I am debating on letting my car go back since i cant afford it anymore. I owe a little over $15000 and the car is worth about $10000, the notes are $604 a month and i am behind 2 months, i need a tag which is about $800 and rising. i make about $1400 a month now since the cutbacks on my job, it costs me $300 a month on gas, $260 a month on daycare for my boy, $120 a month on car insurance, $100 on phone bill, not including grocery an utility bills as well, now voluntary or not and i have trie everything but bankruptcy and doing things the wrong way, dont u think the best thing to do is to come get the car, or for me to find one before they come get it, cuz im sorry i just cant afford it anymore, cuz they wont take what i can give them and i cant get it refinanced or trade it in...if nothing good can come out of this at all then o well... i tried. what do u think?
14. Posted by Bill on Thursday 29th October 2009 17:37
You are in a tough spot. If you return the vehicle in an involuntary repossession, you will face a $5000 deficiency balance. The only thing I can suggest is to try what Bills.com reader Latoya is attempting in Advice on auto loan default. Scroll down the page and see our conversation in the reader comments section.
15. Posted by chris on Friday 8th January 2010 08:18
I have a vehicle costing me 637 a month and insurance costing me 300 a month... ive tried to refinance the vehicle and tried to keep up but military pay just isnt enough to live on... I told them that i am going to surrender the vehicle and i know i may be owing in the 20's of thousands of dollars... i really dont know whats about to happen but i have 3 to 5 days to try something i just dont know what... i just cant be held down by the car anymore
16. Posted by Sbug on Wednesday 13th January 2010 16:46
We are military and we filled bankruptcy in 2000 and as of this summer it will be off of our credit report!! Our problem is this we currently have a 2006 buick that we owe over 21000 on and yet it is only valued at 9500, our dealer and lender pulled a fast one on us to say the least, We have been considering voluntarily surrendering the vehicle, But being military I am worried they will come after my spouse, is this the case?
17. Posted by Bill on Wednesday 13th January 2010 19:04
I cannot answer your question with the facts presented. Do you, the writer of the message own the vehicle with only you on the title? Is only your name on the loan documents? Alternatively, are both spouse's names on the title? Are both spouses signatories of the loan documents? Also, in which state does each spouse reside (with the understanding that military people can be domiciled anywhere at a moment's notice)? In which state was the car purchased?