What is Voluntary Car Repossession?

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Article QuickTakes:

• Advantages and disadvantages
• Costs
• How it impacts your credit
• Deciding between voluntary and involuntary repossession

When you get behind on your car loan and miss several payments, you have two repossession options: have the car repossessed involuntarily or surrender the car, which is called voluntary car repossession.

Voluntary car repossession is when you arrange with the lender to return the car on your own terms, rather than forcing the lender or collection agency to find and repossess the car.

So what are the advantages of voluntary repossession? What are the disadvantages? Will you still owe money, and what's the impact on your credit report?

Advantages and Disadvantages of Voluntary Repossession

Advantages

Though repossession isn't a situation you want to encounter, engaging in the process voluntarily has some advantages, helping you to mitigate the stress, inconvenience, and financial impacts of a sticky situation. Some important benefits include:

• You avoid the stress and embarrassment of an involuntary repossession
• You choose when and where to return the car
• You won't incur the lender's repossession costs, including repossession agents, towing, and storage fees
• You won't be caught unknowingly without transportation

Disadvantages

Many of the disadvantages that come with voluntary repossession are the same financial challenges you may encounter with any repossession. A few key concerns are:

• You'll still owe the remaining balance on the loan, or, if the car sells at auction, you'll have to pay the deficiency balance
• If you don't pay the remaining balances, the lender could turn the account over to a collections agency or even take you to court
• It has the same negative impact on your credit score as an involuntary repossession

Costs

In any repossession scenario, you'll owe the lender money. Unless the car sells for more than it's worth at auction, you'll likely owe the lender the deficiency balance, or the difference between what you still owed on the loan minus what the car sold for at auction, plus any repairs needed to get the car ready to sell.

With voluntary repossession, however, you might not be responsible for any of the costs incurred during the repossession process, including hiring a repo agent and paying for towing.

How Voluntary Repossession Impacts Your Credit

All repossessions will negatively affect your credit score and can remain on your credit report for up to seven years.

By arranging to return the car voluntarily, however, you can build some goodwill by communicating and working with the lender rather than hiding from the situation. Future lenders might look more favorably on a voluntary repossession than an involuntary one.

Realistically, lenders look at your credit history as an indicator of whether you can repay your future debts in a timely manner, and not the circumstances that caused you to fall behind.

You could also call your lender to see if it will agree to not report the repossession and missed payments if you surrender the vehicle voluntarily. Just be aware that some credit bureaus require lenders to report that information, so it could be out of the lenders' hands.

Deciding Between Voluntary and Involuntary Repossession

Voluntary car repossession is only a slightly better option than involuntary repossession. You may be slightly more prepared and have some control over when you surrender your car.

Avoiding some of the extra fees that can come with involuntary repossession can be helpful too.

In terms of your credit, voluntary repossession can be the better option if you communicate and cooperate with your lender early on. In most cases, lenders would rather work with you than spend the time and money on the repossession process.