What is voluntary repossession?
Voluntary repossession is when you realize you cannot pay your auto loan and you take the car back to the lender on your own terms. When you secure an auto loan, you are required to make periodic payments usually monthly payments for the vehicle.
The lender has the right to take back the car if you are unable the pay for the car. The lender’s repo team may just pop up to take the vehicle if you fail to make payments.
This is called involuntary repossession. With this, you will incur more debts. However, with the voluntary repossession, you rid yourself of any form of stress related to involuntary repossession. You will not wonder when the repo team will come to your home. You will also not incur further debt such as towing fees.
Will voluntary repossession affect my credit?
Even though your credit may be affected with voluntary repossession, the damage caused is less compared to the one caused by involuntary repossession. The difference is, however, minimal. Surrendering the vehicle means you are willing to cooperate with the creditor. However, your credit will still be affected since you defaulted on the loan in the end. The creditor is more interested in whether you paid the loan or not. Even though your credit will still be affected, you can save some cash by surrendering your vehicle.
Will my debt be canceled after a voluntary repossession?
You will not need to pay the loan in full but will be some costs that you will be expected to pay. In most cases, the lenders auction the vehicle in a bid to get the majority of the money back.
The money received from the auctioning of the vehicle will be used to cover your debt. However, if after subtracting the cash received from your debt and there is a balance, you will be expected to pay. This balance is usually termed deficiency. The deficiency will reflect on your credit report along with the repossession note until you pay it off.
After voluntary repossession, you should discuss a payment agreement with your lender. If you do not do that the lender may sue you to collect the deficiency. This can lead to serious consequences. If they go to court, it can lead to a judgment which can also lead to wage garnishment. Wage garnishment can massively affect your credit score negatively. So even if your lender takes you to court, it is advisable to appear before the court and try to avoid a judgment at all cost.
Act fast to avoid a repossession
Both voluntary and involuntary repossession is bad for your credit. If you can, avoid them at all cost. Voluntary repossession will make it difficult for you to access another auto loan.
It will be more difficult if you have not paid off the deficiency on your account. Even if you have paid but the record is still fresh on your report, you will have a hard time getting a new car. When you miss a payment, it will be difficult to catch up. Some lenders even repossess the vehicle when you miss a single payment. This is why you should take action when you start struggling to make payments.
You can start by preparing a budget. If you already have one, prepare another one with reduced spending on certain luxuries. Try to stick to your new budget as much as possible. You may also add a second string of income if you have some time on your hands. This will bring in extra cash to cater for the shortfalls.
You can also refinance your auto loan if you have good credit. Refinancing your loan will help you to access a new loan at lower fees. This will ease your financial burden a little. As a last resort, you can also sell the car and use the cash to settle the loan. If you are able to sell the car at a cost that is higher than your loan amount, you can just pay off the loan. However, if the loan amount is higher than the amount for which you sold the car, you will need to raise the balance and pay it off.
Is it possible to remove a voluntary repossession from my report?
Usually, there is a seven-year limit after which the repossession will be removed from your report. However, you can work with a credit repair company to remove it from your report before the seven-year limit.