Voluntary car repossession is a condition in which a person returns a car to the lender if they can no longer afford to repay the car loan. The person informs the lender about their incapability to make any further payments and has decided to surrender the car. There are some benefits and disadvantages of voluntary car repossession. Learn about how voluntary car repossession affects your Credit score. You should understand all of the benefits and disadvantages before deciding to repossess your car. This will allow you to make a more informed decision.
Benefits of Voluntary Car Repossession
The benefits of voluntary car repossession vary depending on the circumstances. If you’re having trouble paying your monthly payments, voluntary car-repossession can relieve the financial burden. Nonetheless, it can also harm your credit rating. You may not be able to sell the car for a profit if you default on the loan, so make sure you understand the consequences of voluntary surrender.
As a car owner, you should realize that you can lose your car at any time. This is especially true if you’re over 90 days behind on your payments. However, car repossession can give you more control over the process. If you’re in the process of defaulting on your car loan, you may be able to negotiate a better deal. By taking advantage of this option, you can avoid repossession altogether.
Another benefit of voluntary car surrender is that you can avoid towing and storage fees. In contrast to a traditional loan default, a voluntary surrender will remain on your credit report for seven years. The negative marks will negatively impact your automotive-specific credit score. If you apply for a new car loan while you have a negative mark on your credit report, lenders will view you as a risk.
Costs of Voluntary Car Repossession
When it comes to costs, voluntary car repossession is generally less expensive. When you surrender your car, you can minimize the storage costs and maximize the value of the auction proceeds. If you are unable to pay the full amount, the bank may accept it as payment for the loan. The forgiveness will be taxed, but the effect on your credit score will be minimal. The benefits of car repossession include avoiding the burden of filing for bankruptcy and allowing one single mark to remain on your credit report.
Disadvantages of Voluntary Car Repossession
One of the biggest disadvantages of voluntary car repossession is that the lender may try to keep your vehicle. However, some lenders will try to work with you to keep your loan current. While voluntary car repossession is not a good option for everyone, if you’re having trouble making your payments and don’t have the money for storage, it’s the best option. It can also save you from repossession fees.
Although a car surrender may save you from the emotional burden of repossession, there are significant downsides to it as well. Besides the cost of a loan, the lender will sell your car to recover its losses. If the car’s value is lower than the amount of the loan, the lender will be left with a “deficit balance” on your credit report. The lender will also likely file a lawsuit against you if they can’t recoup their losses.
Credit Score Impact
While voluntary car repossession may seem like an ideal solution in some situations, it’s important to remember that it will also harm your credit. It can limit your ability to get a car loan and will reduce your interest rates and borrowing capacity. Even if you can afford to repay your car loan, you will still need to pay late fees, late payments, and any additional fees that go along with it. Lenders may also charge you higher interest rates as a result, making it difficult to obtain credit.
Alternative to Voluntary Car Repossession
One of the most popular alternatives to voluntary vehicle surrender is selling your vehicle. While this option will alleviate your immediate loan problems, it won’t solve your long-term financial woes. After all, if you sell your vehicle, you’ll have to pay the remaining loan balance, which is likely to be much lower than the car’s market value. This can be extremely inconvenient if you need to pay your car loan in full, so finding an alternative that doesn’t have such a drastic effect on your finances is a much better option.
Conclusion
If voluntary car repossession is your only option, make sure you consult a lawyer. This type of repossession is often the best way to clear your credit history. But it can also have many other financial consequences. It puts your account into collections, and it can harm your credit score. You might consider selling the car instead of repossession. Buying a cheaper car may also help you reduce your monthly payments. You can also pay in full, eliminating any worries about your loan payments. But remember, car repossession should be your last resort. Rather than taking the risk of repossession, call your lender. They can work out a solution for you.