If you are unable to make your car loan payments, you may be considering a voluntary repossession or a voluntary buyout. Let’s explore the advantages of a voluntary repossession over a standard repo, and the possible consequences of both.
Repossession vs. Voluntary repossession
If you stop making payments and default on your car loan, the lender has the right to repossess your vehicle. However, if you know that you are in the face of repossession, you can voluntarily give up the car by telling the lender that you cannot make the payments and returning it.
In most cases, you are informed of a repossession. However, some lenders can repossess your vehicle after a missed payment and give no notice – it all depends on what’s in your loan agreement and your state’s laws.
The method a lender uses to repossess your car can also vary. Some lenders send a salvage company to hook the vehicle up to a tow truck, and some now have the option to remotely disable your car from starting so they can locate and retrieve it later. Whichever method they use, it probably won’t depend on your personal schedule.
With a voluntary buy-back, you give up the vehicle on your own terms and you no longer run the risk of the lender unexpectedly towing it while you’re at work or out of your home. You can also avoid a number of costs associated with repossession, such as towing. A voluntary repossession gives you the opportunity to remove your personal effects and plan for your future transportation needs.
Your credit score after repossession
When you give up your car, it shows up as a discount on your credit reports. According to Experian, the impact of repossession on your credit score may be slightly lower if you voluntarily give up the vehicle.
A repossession can have more impact on your credit score in several ways. When a lender repossesses a car, they usually hire a salvage company to take it and pay storage fees while it is waiting to be sold. The lender then bills the borrower for these items. If you don’t pay them, you run the risk of the account being sent for collection, further damaging your credit score.
Once the vehicle is repossessed, the lender sells it (usually at auction) and this money is used to pay off your loan balance. If there is a balance left after you sell the vehicle – called a deficit balance – you must pay that amount to the lender. If you don’t, the lender can send the account to collections and even garnish your paycheck, and that is reflected on your credit reports as well.
By selling your car yourself, you can avoid paying additional repossession fees, which can be costly. Typically, a pension company charges between $ 150 and $ 400.
Obtain a car loan after repossession
Try to avoid repossession altogether by tracking your car loan payments or working with your lender before you miss one. In some cases, you may be able to manage your payments by refinance your loan, but that’s not always an option. You can also try trading in the vehicle for something more affordable, so you can keep track of payments and avoid defaults.
A repossession and a voluntary assignment both negatively impact your credit score for seven years. This, in turn, can affect your ability to secure a future loan. With either one on your credit reports, it means that you are likely to be considered a high risk for lenders and charge higher interest rates on loans.
If you have bad credit due to a repossession or voluntary buyout and are having trouble getting a car loan approved, we want to help. TO Auto Express Credit, we reached out to dealers across the country with risk financing options.
These subprime lenders work with borrowers with unique credit situations and consider more than your credit score for approval. We want to put you in touch with a reseller in your area, so fill out this form for free auto loan application form to begin!