What is Voluntary Car Repossession? Everything You Should Know
What is Voluntary Car Repossession? Everything You Should Know
Posted on April 2, 2022
This is another of our blog posts prompted by a customer. This time it was a question around voluntary car repossession and whether it was a good idea or not to avoid defaulting on a car loan in Cambridge.
So, what is voluntary car repossession and is it a good idea?
What is voluntary car repossession?
For once, the term actually means what it says. It’s when you voluntarily allow the lender to repossess the car to avoid defaulting on a loan or as you default on the loan.
Rather than waiting for the lender to take action and potentially incur legal and repossession fees, you can voluntarily give up your car to the lender to settle the debt.
It isn’t a situation we would recommend unless absolutely necessary as it will have repercussions, but it can be more favourable than an enforced repossession.
How does a voluntary car repossession work?
Voluntary car repossession will be subject to agreement by your lender. Essentially, you discuss your options with them and see if you can work out alternative means of paying the loan.
If you cannot come to an agreement, you may be able to organize voluntary car repossession.
You will agree and time and a place to return the vehicle and it will either be collected or you delivered it to that place. You will take all the vehicle paperwork and both sets of keys and hand it over to a lender representative.
What you need to be aware of
You need to be aware of a few things before you go for voluntary car repossession.
You may still owe money – If you’re in negative equity or have racked up fees, the value of the car may not be enough to settle the loan. Even though you’re trying to do the right thing, you may still have an amount to pay to the lender to settle everything.
It will appear on your credit report - Voluntary car repossessions will appear on your credit report and stay there for up to 7 years. The term used is ‘voluntary surrender’ but other lenders know what it means.
Depending on the situation, the situation may also impact your credit score. Much depends on whether you missed payments or not, incurred legal fees or were able to settle the loan in full.
It may impact your ability to borrow in the future – You may find it harder to get a loan while the voluntary car repossession is on your credit report. Some lenders will overlook it while others won’t. If you are approved finance, expect to pay a higher rate of interest to compensate for the higher risk you present.
It’s not your only option – Lenders have many tools at their disposal to help you repay your loan. You can work with them to come up with a manageable way to repay. You can also refinance for a cheaper loan depending on how much you owe.
You could also sell the car privately in the hope of making enough to cover the outstanding cost.
When you’re ready for a car loan, get in touch with the Cambridge auto loan experts at Northway Ford for great deals on auto finance.
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