How to Perform Voluntary Repossession

George Simons | October 19, 2022

Summary: Voluntary repossession gives you more control of when your vehicle gets taken away. Here is SoloSuit's guide to voluntary repossession, its pros and cons, and how it will impact your credit.

If you encounter financial hardship and suddenly fall behind on the payments being made towards your auto loan, there is a risk the bank will exercise its right to take possession of the vehicle. This is what is known as a “repossession.” Most financial institutions offering auto loans include language in the terms of the loan agreement that enable them to repossess your vehicle without even having to go to court.

A repossession does not need to be initiated by the lender. In fact, you have the option to return the vehicle to the lender or dealership and surrender your keys. This is what is known as a “voluntary repossession.”

In some circumstances, it makes sense to initiate a voluntary repossession

You may want to consider initiating a voluntary repossession if you are unable to keep up with your auto loan payments and you do not see a viable path toward catching up on those payments and/or making timely future payments.

Initiating a voluntary repossession has benefits

Handing over the keys to your vehicle is generally considered an unpleasant and difficult experience for many people. Nevertheless, there are benefits to taking such action that may outweigh the emotional pain of turning over your vehicle to the lender or dealership. One of the biggest benefits associated with voluntary repossession is avoiding the additional charges often levied by banks and/or dealers when an involuntary repossession is initiated. The additional costs are associated with the removal of your vehicle and impound fees.

Another benefit of voluntary repossession is that you will maintain a level of control over the situation, which basically means you retain the option of deciding when it makes sense to hand the vehicle over to the lender or dealer, as opposed to a surprise involuntary repossession.

Voluntary repossession also gives you the chance to remove any and all personal belongings that may be in the vehicle. In contrast, if your vehicle is repossessed involuntarily, you run the risk of personal items being lost or damaged.

Finally, when you voluntarily give up your car for repossession, you avoid the embarrassment of others witnessing the repossession because you have control over it.

How does the repossession process work?

When a lender decides to initiate a vehicle repossession, it is important to understand that they are under no legal obligation to provide you with any advance notice. They also reserve the right to enter onto your property to reclaim the vehicle. In most instances, a towing service will be retained by the lender and they will visit your home or place of business to obtain the vehicle. That towing service will likely deposit your vehicle at a local storage facility. The towing service charges a fee for this work and the storage facility charges fees for the amount of time the vehicle is stored. As mentioned earlier, these costs will be passed on to you.

How to perform a voluntary repossession of your vehicle

The actual process of surrendering your vehicle for voluntary repossession includes the following steps:

Proactively inform your lender that you are unable to maintain making timely, monthly payments. As a result, you intend to return the vehicle via a voluntary repossession.
Work with the lender to arrange a time and place for dropping the vehicle off.
Maintain records of when the voluntary repossession takes place, where it took place, and with whom you interacted to complete the voluntary repossession.
Once the lender has the vehicle, they will likely attempt to resell the vehicle on the open market or at auction. If the lender succeeds, you will receive a statement with the details of the transaction.
Just as with involuntary repossession, you will be obligated to pay the difference between what the vehicle sold for and what you owed on the loan (i.e. the “deficiency balance”).

Voluntary repossession will impact your credit

A negative aspect of initiating a voluntary repossession is that it does nothing to mitigate the potential harm to your credit score. Even if you successfully complete a voluntary repossession, the payments you missed on the auto loan will still appear on your credit report. In addition, the repossession itself will likely go on your credit report. If that wasn't bad enough, both the missed payments and repossession will remain on your credit report for around seven years.

You are still responsible for your loan balance

Another drawback to a voluntary repossession is that it does not alleviate the amount you owe on the auto loan. As mentioned earlier, the lender will likely try to resell your vehicle on the open market or at an auction. If the vehicle sells, the proceeds will be applied to the sale proceeds. If the sale price is less than the loan balance, you would still be responsible for the remaining balance left on the loan.

Summary of voluntary repossession

Initiating a voluntary repossession may be helpful if you are unable to make timely car payments each month. If you succeed in voluntarily turning over your vehicle to the lender, it could save you a decent amount of money in fees and charges associated with an involuntary repossession. However, a voluntary repossession will typically hurt your credit score.. As a result, deciding on whether to move forward with a voluntary repossession will depend on your unique circumstances.

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