Advice on Voluntary Surrender of Vehicle

How affected would my credit really be if I voluntary surrender my vehicle?

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.

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Bill's Answer
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Highlights


  • Review the consequences of a voluntary surrender of your vehicle.
  • Avoid repossession if at all possible, due to the credit impact and the collection efforts that will ensue on what you still owe.

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 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 hope this information helps you Find. Learn & Save.

Best,

Bill

Bills.com

35 Comments

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  • 35x35
    Mar, 2013
    Terry
    My dealer "sold" me a lease a year ago when I told him I had another car on order for a year from then. I needed the car for only 1 year or less. He told me to lease it and he would buy it back in a year. He told me I'd owe him a few hundred dollars. Maybe they'd pay me? When I went to have them buy it back, he wanted $15,000! It seems car has depreciated 60% over 10 months? BS. I can afford both payments, (new car and "his" car) but I do not need 2 cars. I feel leasing should have never been offered. I am stuck with car. 2 years left. Voluntary surrender? Options?
    0 Votes

    • 35x35
      Mar, 2013
      Bill
      The economics you describe do not square with what I understand about vehicle leases. Typically, there's an upfront fee for a vehicle lease, monthly payments, and then nothing due at the end of the term unless the mileage limit was exceeded or the vehicle was beat up. You did not mention the dealer using excessive mileage or damage as an excuse for the $15,000 fee, so it is safe to assume you didn't drive to the Moon and back or convert it to a Burning Man art car.

      Take your lease contract to a lawyer in your state who has contract law or civil litigation experience. A lawyer will be able to tell you in few minutes what rights and liabilities you have for the leased vehicle.
      0 Votes

  • 35x35
    Sep, 2012
    nazer
    I have co-signed for a car loan for my friend who do not have credit history .after an year my friend moved to different city. After 2 years of regular payment without missing even single payment , the car went into accident and it only has a labiality coverage. I came to know about the accident when the towing company contacted me to sign and fax a voluntary surrender form to sell the car in auction . After signing the form, a month latter my credit score has fallen down from 710 to 620 all of a sudden .My friend is ready to make a payment for the remaining balance but the financers took time to sell the car and give us the balance amount. Now my question is why is delinquency / derogatory activity is reported on my credit report. First of all why co-signer has got to do with the accident and more over I observed my friends address reflecting as my previous address on the report. There is never a missed payment nor he is making delay in paying off the balance . Please advise how I can fix this negative flag on my credit history . Any advice is highly appreciated.
    0 Votes

    • 35x35
      Sep, 2012
      Bill
      When you became a co-signer, you took 100% responsibility for the loan. It seems that once you agreed to a voluntary surrender, it was reported to the credit bureaus. Your credit will start rebounding, once the debt is brought down to a $0 balance.

      Speak with the creditor to see if they are willing to alter the way the account was reported to the credit bureaus, as the balance is being paid in full. They may not agree, but it is worth a try.
      0 Votes

  • 35x35
    Aug, 2012
    Alex
    I in-house financed a car 6 or so months ago and am now moving away from hawaii back to Georgia. I can no longer afford these payments obviously and cannot take the car with me. The dealership said Try to sell it for the 5600 I still owe on it (not including the 25.99% finance I owe still too (2k)) and they will see if the owner is ok with that. and hopefully theyll forget about the difference I owe through the finance. I have like 4 days to do this and i doubt this 2k car is going to sell for 5600. what are my options? voluntarily surrender it back to dealership? take a 2k offer and run haha? Credit means nothing to me in today's world so I do not mind it denting that, however garnishing my wages or being sued I care. Check state regulations?
    0 Votes

    • 35x35
      Aug, 2012
      Bill
      If you can't sell the car for what you owe, you can either surrender the car or have them repossess it. Either way, the car will be auctioned off and you will be on the hook for any deficiency balance (the difference between what you owe- including the finance charges- and what the car sells for at auction). The lender can come after you in Georgia, though it may take some time to locate you.
      0 Votes

  • 35x35
    Jun, 2011
    Amy
    Hi, last year in october I leased a car. Back then, I had a good paying job and good enough credit to lease the car. but, In February, I lost my job and have been struggling to make payments since. I don't have a stable job anymore, the current one I have only schedules me once a week and is min wage. I'm trying hard to find another job, but it's proving to be difficult. I'm only 21 years old, and I don't have any credit cards or own any houses, etc. This is my first real big financial mistake, and I feel like voluntary repossession is my only option at this point. I can't be held down by this car anymore, it's not worth it to WORK for the car. what should I do?
    0 Votes

    • 35x35
      Jun, 2011
      Bill
      Your options are limited, as the original answer above implies. You can attempt to negotiate different terms with the lender. Alternatively, you can allow a voluntary repossession and surrender the vehicle.
      0 Votes

  • 35x35
    Mar, 2011
    weston
    I am currently in settlement negotiation with my debt holder. The debt is for an autoloan on which i willfully surrendered the vehical. I contacted the company holding the debt and they informed me I owe $9,100 and are willing to settle with me for $3,100. This would be great, only i don't believe i owe that much on the debt. I asked for proof of debt to be sent to me and was told that i cannot obtain a record of what was owed, what the vehical sold for at auction, principle/interest.ect. Is this standard practice? I believe I have a right to be shown proof of debt. Am I wrong? details: the default is over two years old through citi-financial. I am currently dealing with a collection agency. I have not received any information from citi-financial since the surrender. Honestly thought i may have broke even. Any help would be greatly appreciated.
    0 Votes

    • 35x35
      Mar, 2011
      Bill
      You indicated you reside in California. I am not aware of any California statute that requires a creditor that repossessed a security that resulted in a deficiency balance to give an accounting to the debtor. (Readers, please correct me if I am wrong.) Nevertheless, you have what the creditor wants — your money. Make seeing that accounting a condition of settling the debt. No accounting, no payment.

      In the meantime, validate the debt.
      0 Votes

  • 35x35
    Jan, 2011
    John
    I recently lost my job and can no longer afford to make payments. I'm contemplating of surrendering the 2nd car with a higher monthly payments. I have looked into a refi but did not feel that it was a better option. I have also look into selling the car to CarMax which I received an offer for $32,000. I currently owe $40,000 and would have to used a credit card to payoff the balance in order for CarMax to complete the transaction. I feel that this would be a better option rather than a surrender but I would like to get your thoughts and feedback.
    0 Votes

    • 35x35
      Jan, 2011
      Bill
      Selling the vehicle and charging the deficiency balance to your credit card is not ideal, but it is better than allowing a repossession and incurring those costs plus the deficiency.

      One other thought: CarMax is almost certainly quoting you the trade-in value of your vehicle. What is the Blue Book private party value? Consider selling the vehicle yourself on craigslist, and sell it for the higher amount, and cut your deficiency balance by several thousand dollars.
      0 Votes

    • 35x35
      Jan, 2011
      paolo
      I agree that paying by credit card will avoid the damage to the credit report that a voluntary repo would incur. I think one point to keep in mind is the exorbitant interest rate that credit card companies can charge. I would not pay off the car balance using a high interest card, if I could avoid it. Also, if you use your card to pay the debt, never let the fall into bad standing. Credit card companies can hike interest rates on delinquent accounts to the sky!
      0 Votes

  • 35x35
    Jan, 2011
    david
    we in the process of moving to canada and the two cars we have said cannot bring them there,since the rules are different for making monthly payments.therefore we returning the cars to the dealers.please advise asap.
    0 Votes

    • 35x35
      Jan, 2011
      Bill
      I am not sure what advice you seek. I don't understand what you mean when you say you can't take the cars to Canada, because the rules for making payments are different. Who told you that you can't take the cars to Canada? I suggest that you speak with the dealer. If you voluntarily forfeit the cars, the dealer will auction them off and then come after you for the difference between what you owe on the cars and what the cars sell for at auction. Even when you are no longer living in the US, it is possible for a creditor to pursue collections. The collector may decide it is not worth the costs to pursue collections, but there is no guarantee that the creditor will not try to come after income you earn in Canada.
      0 Votes

  • 35x35
    May, 2010
    Bill
    Is there an alternative to repossession if you stop making payments on a secured loan? None that I am aware of -- that is the point of a secured loan. Unless your financial picture improves, your boyfriend is facing a repossession and the resulting deficiency balance. It is too soon to file for bankruptcy. As you mentioned, your boyfriend should consult with an attorney about his rights, and to understand the exemption amounts in his state of residence.
    0 Votes

  • 35x35
    May, 2010
    Angela
    My boyfriend has a 2007 Toyota corolla and pays about $400.00 a month for his car. I lost my job over a year ago and he now also pays $330.00 a month for my car. We have had a lot of un-for-seen things come up such a becoming young parents and the foreclosure on my parents home in which we were also living. We live in pa. We are finding ourselves behind by on both car payments every month. My boyfriend tried to find cheaper insurance on his car. He eventually got liability on a car still being financed. He thought it was legal and if he got into an accident he would be covered by his "platinum" coverage as well as gap. Just a week ago he got into an auto accident in which he was found at fault. His car has $5,000 dollars in body damage not including the engine and interior damage. The insurance company will not total out the car because the airbags did not deploy. We recently found out his cars gap coverage is out because of the liability coverage. He had to have full coverage to keep the gap active. The finance company never called to check with the insurance company to make shut the finacee's (my boyfriend's)car was properly insured. Now we are stuck with a huge bill for towing, storage fees, the monthly payment, and fixing the car. We live paycheck to paycheck. I am still unemployed. I see no option for us then to surrender this car. Should we seek out an attorney? Should he file for bankruptcy? His credit was bad before this happened as-well. His cousin is a co-signer on his finance agreement. What are our options any advice would be greatly appreciated. Thank-You!
    0 Votes

  • 35x35
    Feb, 2010
    sanfranciscoben
    I heard about voluntary surrender. So I called Toyota Financial. Apparently there is no such thing. It's a repossession in sheep's clothes. Instead of taking 5 months to steal the car at night, they show up in a week and take it away right in front of you. Your/my report will still say "repossession" with all the negative side affects. I should had leased my car 3 years ago instead of purchasing it.
    0 Votes

  • 35x35
    Jan, 2010
    Bill
    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?
    0 Votes

  • 35x35
    Jan, 2010
    Sbug
    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?
    0 Votes

  • 35x35
    Jan, 2010
    chris
    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
    0 Votes

  • 35x35
    Oct, 2009
    Bill
    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.
    0 Votes

  • 35x35
    Oct, 2009
    Rueben
    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?
    0 Votes

  • 35x35
    Sep, 2009
    Bill
    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?
    0 Votes

  • 35x35
    Sep, 2009
    Patricia
    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!
    0 Votes

  • 35x35
    Aug, 2009
    Bill
    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).
    0 Votes

  • 35x35
    Aug, 2009
    AZ
    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
    0 Votes

  • 35x35
    May, 2009
    Bill
    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/.
    0 Votes

  • 35x35
    May, 2009
    Jason
    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.
    0 Votes

  • 35x35
    Apr, 2009
    Bill
    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.
    0 Votes

  • 35x35
    Apr, 2009
    Rosanne
    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.
    0 Votes

  • 35x35
    Mar, 2009
    Bill
    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.
    0 Votes

  • 35x35
    Mar, 2009
    Antonette
    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.
    0 Votes

  • 35x35
    Feb, 2009
    Bill
    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.
    0 Votes

  • 35x35
    Feb, 2009
    Lourdes
    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.
    0 Votes