Does A Voluntary Repo Hurt Credit?

How Does a Voluntary Repo Affect the Credit?

In this instance, you propose to voluntarily return your automobile, which is regarded as the "last ditch" action when you cannot make the monthly payments but do not want the car to be taken back by force. You should be aware, however, that even if you are ready to donate the automobile freely, your credit will suffer. This is a fact of life. We shall go into great length in this post on how and why a volunteer repository affects your creditworthiness and rating.

What is Voluntary Repo or Voluntary Surrender?

Voluntary repossession—also known as voluntary surrender—is the process by which an automobile owner returns the vehicle to the loan company upon inability to make payments. Stated differently, it indicates that you are returning the car to prevent loan nonpayment causing the lender to seize it. The lender then reclaimed the car to maximize debt recovery from the outstanding sum.

Beginning the process before payments are several months in arrears, differs from a forced repossession the owner starts in that you have somewhat more control as the owner. Though this one is voluntary, for your credit this form of repossession is almost as awful as the other.

Why does a voluntary repossession reduce your credit score?

There are a few reasons why giving up your vehicle voluntarily still wreaks havoc on your credit just like a forced repossession.

1. It is still a default on the loan – Filing a voluntary surrender of the car or having the car repossessed by the lender means that you have violated the terms of the loan agreement that you entered into. This default is then passed on to the three major credit bureaus.
2. Extensive harm to the credit score – Because a voluntary repossession is considered a fatal mistake in the credit history, it leads to the loss of 150-250 points or more. It is almost as popular as some of the other failures like bankruptcies or some foreclosures. The impact is almost instant too.
3. Erosion of credit score – Even after the repo has been processed, it generally takes several years to recover creditworthiness. The voluntary surrender will further affect your score for approximately 7 years after the time it is reported to the credit reference agencies. That’s nearly as long as the decade it takes after a foreclosure.
4. Reduces your chances of getting other loans/credit - If you are willing to have your car repossessed either voluntarily or involuntarily, your credit rating will be greatly affected, and you will have a very difficult time trying to get any type of credit. Lenders will even consider you as one of the highest risks out there to lend to. Expect to be turned down for credit cards, mortgage, and auto loans many times over.

In other words, you might as well be making a voluntary surrender of your vehicle to the finance company as to be having the finance company force its way onto your property to repossess your car. Each of them is one of the main derogatory marks and score-killers.

This paper aims to identify the process of repossession and the timelines involved in credit reporting.

When you make the difficult decision to voluntarily surrender the vehicle, here is a general timeline of what you can expect.

• Call the lender to inform them of the intention to surrender a car due to voluntary repossession. Include details of where to find the pickup vehicle.
• The lender repossesses the vehicle in the case of default by the borrower. Condition is assessed and the vehicle is moved to the auction center.
• The voluntary repo can appear on your credit reports in one or two months or even less time.
• The lender is ready to dispose of the vehicle through dealer auction within 1-2 months in most instances.
• Any balance remaining is then forwarded to the collection agency (ies) usually after 90 days of sale. Further damage to credit.

The whole process of fallout takes around 6 months, however, the biggest part of the harm is during the first 1-3 months. Remember this when determining if surrendering the vehicle is the only course of action left after considering all your options. The credit damage will be quick and painful.

Preventing Excess Loss from Voluntary Repossession

If your financial situation leaves you no choice but to voluntarily surrender the vehicle, follow these tips to minimize some of the resulting credit damage.

• Do not talk to the lender AFTER missing payments. Consult whether you can obtain extensions, change the terms of repayment, or refinance first. Far more a lot less credit harm if accepted.
• It may be better to sell the car yourself instead. There is more flexibility on the selling price and the balance can be paid to clear the loan without the dangers of loan repayments.
• If repossession becomes inevitable, act and inform the lender immediately upon discovering that you cannot meet the monthly payment. It reduces your credit score, and the longer you delay, the worse it gets.
• The borrower should ensure that all the terms of surrender sale etc. Are agreed in writing from the lender This creates a paper trail that will show that the repossession was not made through force.
• Contact the credit bureaus beforehand and ask them to tell you down to the date and manner in which the voluntary repo will reflect in your report. This allows you to prepare yourself, as a result, for the worst that is in store for you.
• Following the repossession, remain current on all other accounts and bills, making at least minimum payments on all credit cards, lines of credit, and loans. This helps you maintain your credit status in other places.

Voluntary repossession should always be the last option on the table. However, if your car loan has deteriorated and you can no longer manage the payments, early and wise action will help to minimize the credit score impact – although a significant one remains any way you turn.

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