How Much Does A Voluntary Repo Hurt Your Credit?

How much does a voluntary repo affect your credit?

When one cannot afford to pay for an automobile anymore, the simplest thing to do is always voluntarily surrender or repossess one. But let me warn you before deciding on this: any voluntary car surrender will seriously damage your credit records. This article will provide a deeper look at what a voluntary repository entails, how many points voluntary repossession will affect your credit ratings, and some other alternatives you may choose to investigate before voluntary repossessions take place.

What Voluntary Repo or Voluntary Surrender of a Car Means?

When you are unable to make the monthly payments, you, the borrower, choose to voluntarily repose or surrender the automobile back to the financer. This might be the car loan provider. That is, you choose to turn down the agreement on the auto loan. After that, the lender will take back the automobile and sell it to offset defaulted auto loan losses.

Voluntary repossession involves getting in touch with the lender to explain the difficulty experienced and inability to make monthly auto payments and negotiating a date for the car to be repossessed. Though you could think of this as the "lazy man's way," its negative consequences mostly show themselves about credit ratings.

How Severe Will a Voluntary Repossession Affect Credit?

Generally, the consequences of a voluntary repossession have very serious effects on your credit. Generally, consumers have reported a range of about 150 to over 300 points reduction in credit score. In the case of those individuals who had fair credit before this happened, it often results in scores falling to the poor credit bracket below 620 or even 580. The damage done by a voluntary repo is nearly as bad as an involuntary repo which is when the lender takes back the car without your permission.

The major reason a voluntary repossession hurts your credit so badly is.

1. The document “Loan Agreement” & Defaulting Thus, by returning your car, you are in breach of the contract entered into when you financed the car through a loan. This default is perhaps the largest reason that causes credit deterioration. It also shows to other future lenders that you have not met your part of the bargain and therefore are more likely to default on your loans.
2. Some of the serious delinquency reported to credit bureaus If you fail to make an auto loan payment and you are 30 days overdue, the lender reports the late payment to the credit bureaus. After you voluntarily repo the car, the lender will report the default or serious delinquency on the account. This further crashes your credit scores even if they were not bad in the first place. Severely delinquent accounts are reported on the credit reports for 7 years.
3. This major derogatory mark on the credit reports means that the financial well-being of the debtor is very much in jeopardy. Surrendering of a car for instance, is categorized as a ‘voluntary surrender’ or a ‘repo’ in credit reports. Both are severe adverse mentions that cause potential creditors to avoid the borrower. These derogs can remain on a credit report for up to 7 years from the date of the last payment or non-payment to most creditors and before disappearing from reports.
4. Reduces Your Credit Card Utilization Ratio The default can make your auto loan to be removed from the credit reports, which in turn, reduces the overall credit utilization ratio. However, reduced usage contribution has a minimal effect of mitigating the harm resulting from the factors elaborated above.

How Long Does a Voluntary Repo Stay on Your Credit Reports? It is vital to understand that a voluntary repossession will have a deleterious effect on your credit score for a period that ranges between 3-7 years from the time you first defaulted or missed payment.

• A voluntary repo can remain on your credit report for 7 years from the first missed payment.
• The derogatory voluntary surrender mark stays for 7 years from when the account charges off.
• However, defaulted auto loan remains on your credit for about 7 to 7. 5 years from the date of your last payment – even longer than when it is removed from the reports.
• The surrendered auto loan affects your credit scores badly and it often takes as long to fix the poor credit scores.

In other words, it is best to be prepared for at least two years of very low credit but, depending on the severity of the offense, up to seven years of being labeled a ‘credit risk’. Moreover, even if you are no longer included in your reports, most lenders can still view and use Voluntary repos history in credit decisions for several more years.

Other Ways of Voluntary Surrender to Avoid Compounding Credit Before you decide to give back the car because you are upside down on the loan or unable to afford monthly payments, then other impacts are negative on creditworthiness. Some alternatives to explore include.

1. Refinancing the Auto Loan By refinancing the car loan, it may be possible to either reduce the interest rates or repay the loan over a longer period and thus reduce the monthly payments to easily manageable totals. Approval is likely to come only if you have good to excellent credit.
2. Selling the Car Outright Even if you sell the car individually for a lower price and give the money to the creditor, some of the loan balance is paid which has a lesser negative impact on the credit compared to voluntary surrender. Short-sale auto loans are still classified as defaults, though they are looked at slightly more favorably by lenders.
3. Working With Lenders Lenders should be contacted early and one should be ready to explain his or her difficulties. Inquire about deferments, due date changes, other payment options, or loan modifications. This demonstrates an effort made towards not facing repo or default.
4. Debt Management Plans Hiring non-profit credit counseling agencies ensures that one gets lower interest rates, elimination of fees, as well as consolidation of payments towards all debts. Prevents all forms of repossession and pays off debts much more quickly.

The Bottom Line Even though a voluntary repossession appears to be the best way out when it comes to expensive auto loan payments, it is not without its cost – damaged credit for several years. However, it is wise to first consult lenders and seek other credit-friendly ways that would not affect your scores this severely. It may be worth thinking twice though since, unfortunately, bad credit results in higher costs for years to most of the credit card and insurance plans and other financial products in the future.

Ready to boost your credit score? Call +1 888-804-0104 now for the best credit repair services near you! Our expert team is here to help you achieve financial freedom and improve your credit. Don't wait—get started today!