How Do I Voluntarily Surrender My Car?

Although a reliable car may be extremely helpful to have in your driveway, the loan you’re using to finance it can be a hefty financial commitment, especially when you factor in the interest and related fees. Depending on what you can afford, your loan payments will likely be stretched out over many years, which can lead to a massive amount of unpaid debt, damaged credit, and a dangerous lack of savings. 

In fact, if your debt becomes too large to pay off, your bank may even repossess your car so they can recuperate their losses. While this can be a huge inconvenience, the process may go easier if you hand over the keys voluntarily. Keep reading to learn the benefits and drawbacks of voluntary auto repossession. 

What Is Voluntary Repossession?

If you’re thinking about financing any type of vehicle, consider the fact that you don’t technically own its title until you’ve completed your repayment plan. Until then, your bank, dealership, or other lender has the legal right to repossess and resell the vehicle if you default on too many of your loan payments. As its name suggests, voluntary repossession is when you bring the car back without them having to collect it from you.

How Does Voluntary Repossession Work? 

Voluntary and involuntary repossession have similar processes. The biggest difference is how much effort you’re willing to put in.

Involuntary Repossession

For instance, if you don’t return the car on your own, your lender will need to have it towed from your dwelling or place of employment. This can not only be embarrassing but result in unwanted towing charges as well. So, to avoid that kind of liability, it may be safer to just drive the car right to them and fork over the keys without a fight.

Voluntary Surrender

All you have to do is inform them of your inability to pay your loan balance, then arrange a time and destination to drop off the vehicle. That said, even voluntary repossession has some major drawbacks that you should be aware of. After all, you’re likely returning your vehicle because you’ve defaulted (or are about to default) on your loan agreement in some way.

Read about how to get a car loan after repossession.

What Are The Benefits Of Voluntarily Surrendering Your Car?

Before we discuss those drawbacks, let’s talk about some of the more positive aspects of handing over your vehicle voluntarily:

• Avoid Fees – You can avoid some of the extra fees the lender would charge you if they had to hire a repo-company to tow the vehicle from your driveway, which could happen at any point, totally unannounced. 
• Keep A Good Relationship With Lender – Since you’ll be returning your car willingly, your lender may be more inclined to keep you on as a future client, as long as you pay back whatever loan related costs remain. 
• No Collection Agency – Although your credit will be damaged whether you give the car back willingly or not, that damage may be less severe if you miss fewer payments and the lender doesn’t have to turn your file over to a collection agency. 

What Are The Drawbacks Of Voluntarily Surrendering Your Car?

Now that you’re aware of the main benefits of voluntarily returning your vehicle, it’s time to discuss some of the major drawbacks, such as: 

• Penalty Fees – Voluntary repossession doesn’t mean your unpaid loan is forgotten. Not only will you be charged penalty fees for any payments you’ve defaulted on, but you will also be responsible for paying the difference between the remaining loan balance and the amount the lender resells it for, if at all.
• Car Resale Value – Since most vehicles depreciate rapidly in value the more they’re driven, it’s likely the lender won’t be able to make a profit or break even upon resale. If you don’t cover the difference within a reasonable timeframe, they could turn the situation over to a collection agency, further increasing your debt problems.
• Wage Garnishment – If your unpaid debt is bad enough, the lender may even try to sue you over the remaining balance, which can lead to wage garnishment and other legal consequences, such as bankruptcy, in the worst of cases.

How Will A Voluntary Repossession Affect Your Credit?

As mentioned, since you may have defaulted on your loan, your credit could be negatively affected, whether you voluntarily or involuntarily surrender your vehicle. Although the exact amount of damage depends on who your lender is, how many payments you’ve missed, and which credit bureau you check with (Equifax or TransUnion), here’s what can happen: 

• Every loan payment that was late, short, or missed entirely will appear on your credit report for several years. When potential lenders inspect your report, they can see these negative marks and may judge your creditworthiness differently.    
• In addition, the account associated with your vehicle loan will receive a worse credit rating. The longer you go without payment and the more debt collection penalties you’re subjected to, the worse your rating becomes. 
• These kinds of events can lead to a significant drop in your credit score, which normally ranges from 300-900. The closer your score gets to the 300 mark, the riskier you’ll be considered when you apply for new credit in the near future. A bad credit score ranges between 300-600 can definitely lead to a rejected application.  
• Obviously, if lenders deem you less creditworthy, your borrowing options will be far more limited and expensive, due to higher interest rates. This is particularly true for lenders that offer vehicle financing and other asset-based credit products, where there is more liability involved when clients default. 

Additional Reading

How to Avoid Car Loan Debt

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Can I Get a Car Title Loan Without a Clear Title?

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Why Is The Vehicle Identification Number (VIN) Important When Buying A Car?

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How Can You Avoid A Voluntary Repossession?

Suffice to say, while voluntarily surrendering your car can save you a lot of trouble down the line, it can still lead to some harsh negative consequences for your credit and financial health as a whole. So, it may be in your best interest to avoid the process however possible. Here’s how you can potentially bypass a repossession entirely:

• Speak To Your Lender – Discuss the situation with your lender before you start defaulting on your loan. They may be able to offer you adjusted payments, a payment deferral or an extension on your term.
• Refinance Vehicle – If those options aren’t possible and your credit is still in good shape, you may be able to refinance the vehicle and acquire a new, more affordable loan contract.
• Budget – If the problem is your spending habits, try creating a proper budget, reducing your monthly expenses, or earning more income with a second job or side hustle.
• Sell or Trade-in Car – If there’s sufficient equity in the car, you may be able to trade it in for a cheaper model or sell it so you can use the profit to pay the outstanding loan balance. If you don’t break even or make a profit for the sale, cover the remaining difference using your own funds so you can transfer the title to a new owner. 

Consider Asking For Help

Before you fall behind on your vehicle payments or accumulate too much debt trying to manage your payments, consider seeking the help of a professional. It’s always in your best interest to ask for help. Speak with your lender or get in contact with Loans Canada for more information about your options.