Returning your car to the lender is better than waiting for it to get repossessed, but not by much. Both voluntary surrender and repossession can result in a major hit to your credit and additional fees. If you're struggling to make your payments, you should exhaust other options before you hand over your car.
According to credit reporting bureau Experian, if you give your car back to the lender, your credit report will list "voluntary surrender" next to the account along with any balance you still owe, because the value of your car wasn't enough to cover your loan. Your credit score will also drop significantly, even if you're not delinquent when you surrender. Just how much it will plunge depends on your individual credit situation. The voluntary surrender will stay on your report for seven years.
Your lender will sell the car you voluntarily surrender and deduct the sale price from what you still owed when you gave it up. If the car sells for less than you owe, your lender will charge you the balance. If you don't pay it, the lender could sue you, get a judgment in court and garnish your wages or take money out of your bank account. If a judgment is filed against you, this will also reduce your credit score.
Because repossession and going to court are expensive for your lender, you might be able to negotiate an agreement so you can keep your car and your good credit. Fox Business suggests developing a budget that includes a car payment you can afford and asking if the lender will refinance. Other options include selling the car yourself to pay off the lender, finding someone to take over your payments and trading in your car at the dealership to buy a more economical model.
Voluntary surrender should be your final option, but it can save you money over repossession. It's also better for your credit score. According to legal website Nolo, your lender can charge you for repossession fees if it takes your car. If you surrender voluntarily, you might be able to avoid these fees. When it comes to your credit report, a voluntary surrender makes you a high risk for future loans, but the fact that you gave the vehicle back when you realized you were in over your head speaks to your responsibility, the Experian team states. If you're able to surrender the car before your payment becomes delinquent, you'll only take one hit to your credit report -- for returning the vehicle -- instead of two -- for returning the vehicle and missing a payment.
- Fox Business: What to Do When You Can't Afford Your Car Payment
- Nolo: I Can't Afford My Car Payments -- Can I Give the Car Back to the Bank?
- Experian: The Impact of a Voluntary Vehicle Surrender
- Credit Karma: How Repossession Affects Your Credit
- Federal Trade Commission. "Vehicle Repossession." Accessed Sept. 30, 2020.
- Experian. "How Long Does It Take for a Repossession to Come off Your Credit?" Accessed Sept. 30, 2020.
- Nolo. "Deficiency Judgment." Accessed Sept. 30, 2020.
- Experian. "What is a Buy Here, Pay Here Dealership." Accessed Sept. 30, 2020.
- Georgia Department of Banking and Finance. "Repossession (Vehicles)." Accessed Dec. 20, 2019.
Miranda Morley is an educator, business consultant and owner of a copywriting/social-media management company. Her work has been featured in the "Boston Literary Magazine," "Subversify Magazine" and "American Builder's Quarterly." Morley has a B.A. in English, political science and international relations. She is completing her M.A. in rhetoric and composition from Purdue University Calumet.