Credit Yogi


Voluntary Car Repossession

Why Would Someone Voluntarily Get Their Car Repossessed?

There are a number of reasons an individual might voluntarily agree to have their car repossessed. It costs the creditor a great deal of money when they have to look for the car, so when a debtor agrees to voluntarily surrender it, the creditor may look upon it favorably and even negotiate some favorable terms. At least, that is the thought in the heads of those who are considering it.

What is Voluntary Repossession?

Voluntary repossessions occurs when a debtor surrenders their vehicle to the lender in lieu of having the lender repossess it after they enter default. This tends to be a last resort for debtors in an effort to obtain leniency from the creditor, collection agencies and the major credit reporting agencies. The analogy is if the debtor saves the lender the cost of having to hire someone to look for the vehicle, the lender may provide some favors to the debtor. The favors could be maybe a reduction in interest charges, a better rating when reporting to the credit bureaus, or the potential to increase the odds for credit approval at some point in the future. Unfortunately, this line of thinking is unrealistic.

Although there may be some small benefits connected to voluntary repossession in some cases, helping your credit is not one of them. By the time you have missed enough payments for repossession to be imminent, your credit is already damaged because of the missed payments and the fact repossession is not an action that occurs to people who are in great financial shape. What this means is you probably have other derogatory marks that are likely to decrease any benefit you might derive from voluntarily surrendering your car.

Is a Voluntary Surrender Better for Your Credit?

It doesn’t matter whether you surrender the vehicle, or the lender repossesses it—the lender will still sell it in an attempt to recoup some of the money you still owe. If it sells for less than your balance, there will be a deficiency balance, which will also be listed on your credit report and further damage your credit rating. In addition, the lender might choose to send your account to collections or file in court for a judgement, further damaging your credit.

Making the Right Choice

When you look at the fact it makes little or no difference whether a repossession is voluntary, instead of rushing to give your car back to the bank, you need to make good use of the remaining time to find a way to come up with the funds to bring the account out of default or negotiate with the creditor to reach a settlement. Depending on the terms of the agreement, it may include a type of voluntary repossession, but at this point you will understand the aftermath of the transaction.

Alternatives to Voluntary Repossession

Agreeing to voluntary repossession is a lose-lose situation for the debtor because it will not only affect their credit but might jeopardize their ability to get to work thus affecting the ability to pay other bills. Before considering voluntary repossession, look at other options that are available and leave repossession—voluntary or not—as a last resort. Consider one of the following options:

  • Negotiate with your lender and show you are willing to honor your commitment. Be willing to work out a payment arrangement but don’t agree to anything immediately. Review your finances to assess what you can afford—be very careful because reneging on a revised agreement will not work well in your favor. In addition, make sure you get the agreement in writing. The agreement should state the required monthly payments and the creditor’s assurance not to repossess the car as long as you stick to the revised agreement. If possible, work out an arrangement where the creditor reports the account as current.
  • Explore options for selling the vehicle. The lender is certainly not going to dig too deep to find the best resale price for your car, so you want to take it upon yourself to see what a private buyer is willing to pay. If you find a buyer willing to pay substantially more than the Kelly Blue Book Value, you can present the opportunity to the lender and explain the benefits it provides for everyone involved.
  • Consider debt consolidation if you are in a position to do so. One option in this aspect might be a balance transfer from credit cards. Many credit card companies allow consumers to transfer balances from auto loans, which gives you the opportunity to pay off the loan, get the title, and begin to repay what is now an unsecured loan with more favorable terms. While this option is excellent, it requires the debtor obtaining a credit card with a credit limit sufficient to pay off the car and terms that make it financially sound.
Are you facing Repossession and would like to know how to handle it?

Consequences of Voluntary Repossession

A voluntary repossession is likely to cause a decrease in your credit score of at least 100 points. Why is the decline so much? It is the result of two major factors: the late/missed payments that caused the need for repossession and the collection activity that will probably follow. How much a repossession affects your credit score will depend on many factors including the strength of your credit before the repossession. If you were sporting a score of 750 before the repossession, a drop of 100 points won’t hurt you as badly as it would if you only had a score of 600.


Why would someone choose to have their car repossessed? Perhaps they don’t know how badly it could hurt them or maybe they are out of work or financially strained to the point they can’t see a way to make up the missed payments. Some people are just unaware of the options open to them or are so stressed they don’t think about it. It’s important to remember a repossession is a repossession whether it’s voluntary or not. It causes the same dip in your credit score and is just as likely to result in a deficiency balance after the lender sells the car. If you are in a financial position to negotiate, that is your best bet or refinance the loan. Whatever you decide, look at your options and only surrender your car if you have exhausted all other possibilities.

You might also love to read about How to Get My Car Back After Repossession.

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