Voluntary Repossession or New Insurance Provider
Should I surrender my car because I can't get insurance?
I have a car loan with my grandfather as the primary and myself as the cosigner. My grandfather passed away last year and I was told when I went to get new insurance that I would have to have him removed from the auto loan. I'd rather just surrender the vehicle. Is this possible? How badly will this affect my credit? What will happen if I don't surrender the vehicle and just want him removed from the loan?
My condolences for your loss. However, I do not understand why you would want to surrender the vehicle because you were not able to obtain insurance with one particular insurance company. I encourage you to contact other insurance companies to find out whether you can obtain a policy without requiring your grandfather's name to be removed from the loan.
Below, I will discuss the ramifications of voluntary surrender of a vehicle.
Repossession is where a creditor holding the title to property takes possession of the property from the debtor.
What is Voluntary Repossession?
"Voluntary repossession" is a term used to describe a situation in which a consumer voluntarily surrenders the property securing a loan, such as an automobile, to the lender that financed the purchase. Voluntary repossessions generally occur when a consumer has fallen behind on his or her loan payments, and decides to surrender the property rather than forcing the creditor to proceed with repossession. Voluntary repossessions occur most frequently with vehicles, but can occur with any type of secured loan, such as the purchase of work equipment, jewelry, etc.
If you are thinking about voluntary repossession and struggling with debt burdens, I would start out by suggesting that you get a no-cost debt relief quote from one of Bills.com's pre-screened providers.
Now, onto to your questions about voluntary repossession. To voluntarily surrender your automobile or other property to the lender that financed its purchase, you would first need to contact the creditor to explain the fact that you can no longer afford your monthly payments, and that you wish to surrender the property. At that point, the lender will likely provide you with a location at which you can safely turn over the property, and tell you any details you need to know about its procedures for processing voluntary repossessions.
Do not be surprised if your creditor is resistant to your request to voluntarily surrender your vehicle; the lender will likely try to work with you to figure out a way for you to keep the loan current and retain the property. These efforts may actually help you in figuring out a way to maintain the loan. However, if you are sure that you cannot afford the loan payments, voluntarily surrendering your vehicle can be a reasonable choice.
How Does a Voluntary Repossession Compare to a Standard Repossession?
In regard to your credit, both a voluntary repossession and a standard repossession have the same effect on your credit rating. They will both appear as repossessions, and will both result in a significant negative mark on your credit history. Under the FCRA, a repossession will appear on a credit report for up to 7½ years from the date of first delinquency. You will likely see your credit score drop substantially, as having a repossession in your credit history marks you as a credit risk. (Watch the Bills.com video Credit Score Advice to learn more about your credit score.)
However, if you truly cannot afford your car payments and are falling behind, it is likely that your vehicle will be forcefully repossessed if you do not take the initiative to surrender it first. The primary benefit of a voluntary repossession is that the costs associated with the process tend to be significantly less than those associated with a forced repossession, which could save you a lot of money as you work to pay off the remaining balance of the debt.
Even if you surrender your vehicle to your lender voluntarily, the lender has the legal right to collect on any balance remaining on the debt after the car is sold at auction. This type of debt is referred to as a "deficiency balance." The creditor may even file a lawsuit against you to collect on the unpaid deficiency balance. You should therefore only proceed with a voluntary repossession if you truly cannot afford the loan, as you will likely still owe the lender a significant amount of money, even after you no longer have the use and benefit of the property.
A deficiency balance is an unsecured debt, which the law treats the same as credit card debt, a payday loan, or medical debt, among other consumer debts. To see your rights and options for resolving the deficiency balance, read "Collections Advice."
For more information about credit and credit scoring, I encourage you to visit the credit help page. In addition, Bills.com offers a wealth of information for consumers struggling with their debts, available on the debt help page.
I hope this information helps you Find. Learn & Save.