Times are tough and it’s possible that those car payments that were once affordable have now become unaffordable due to unemployment. If you currently have a car loan have and fallen behind on the payments, then there is a possibility that the lender will take back the car, which is called a “repossession.” However, if you voluntarily take your car back to the lender, or the dealership in which you bought the car, then that would be called “voluntary repossession.”
Why would you want to voluntarily repossess your car?
One of the major benefits of voluntarily giving your car up to the lender is that you will likely reduce the number of fees that the lender will charge if they have to come to get the car themselves. After all, depending on your state’s laws, the lender can easily come to get the car themselves without even having to knock on your door. A tow truck will come and simply tow the vehicle off to a storage lot and you will incur charges for the tow and the storage of the vehicle. But if you give the car up yourself, then you won’t need to pay.
A voluntary repossession will hurt your credit
If you have missed car payments, then your credit has probably already suffered greatly. And the bad news is that if you do decide to voluntarily repossess your car, then your credit will take an even bigger hit because the repossession will go on your credit history as well. However, don’t give up hope, as your credit can take a turn for the better if you keep paying your other bills on time.
You will still owe money on the loan
Unfortunately, voluntarily repossessing your car doesn’t cancel out the loan that you had with the bank as you still technically owe the money to them. According to The Balance, what happens is that the lender will auction off the vehicle and apply the proceeds to the existing loan amount and you will owe the remainder of the balance. For example, if you owed $10,000 on the car and the bank sells it for $4,000, then you will still responsible for the remaining $6,000.
In this case, the lender can either send your new remaining debt to a collector in order to collect the debt from you, or they could possibly sue you for the remaining amount and have the court garnish your wages.
Getting a new vehicle will be tough
By giving up your car and tarnishing your credit, just keep in mind that getting another car will be tough. With a repossession on your credit history, along with missed payments, it will be hard to find financing again and you might be either faced with having to save up to pay for a car in cash or go to a “buy here, pay here” used car dealer, which will have really high-interest rates.
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Try to keep your vehicle, if possible
If you can keep your vehicle, then we suggest trying your best to do so. Even if it means that you need to get a second job to be able to make the payments or budget your money even tighter, it may be worth it. Also, if your credit happens to still be good, then you might be able to refinance the loan for a lower, and more manageable monthly payment. One last resort would be to sell the car, however, if you owe more than the car is worth, then you will most likely have to pay off the difference before transferring the title to the new owner.