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.
By
Daniel Cohen
- 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
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.
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.
In the meantime, validate the debt.