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How to Perform Voluntary Repossession

Patrick Austin, J.D. | January 30, 2024

Patrick Austin
Attorney from George Mason
Patrick Austin, JD

Patrick Austin is a licensed attorney with a background in data privacy and information security law. Patrick received his law degree at George Mason University's Antonin Scalia Law School, where he served as the Editor-in-Chief for the National Security Law Journal.

Edited by Hannah Locklear

Hannah Locklear
Editor at SoloSuit
Hannah Locklear, BA

Hannah Locklear is SoloSuit’s Marketing and Impact Manager. With an educational background in Linguistics, Spanish, and International Development from Brigham Young University, Hannah has also worked as a legal support specialist for several years.

Summary: To perform voluntary repossession, inform the lender of your inability to pay, arrange voluntary repo, record details of the surrender, and pay off any sale-loan difference and fees. Voluntary repossession will impact on your credit, but you can rebuild it by resolving your other debts and staying on top of future payments.

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.”

What is voluntary repossession?

Voluntary repossession is when you return your vehicle to the original creditor or lender (usually a bank) when you can’t afford to continue making payments.

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”).

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.

Let’s look at a real example of when voluntary repossession was the best choice.

Example: Matt, a financially strained college student, faced a tough decision when he couldn't afford his car payments and insurance for his 2016 Hyundai Elantra. He owed $15,000 on the car, worth only $4,000 to $9,000, with a high interest rate of 28%. Realizing his situation was untenable, Matt voluntarily contacted his lender, Santander, to surrender the car. He understood this wouldn't absolve him of his loan, as he would still owe the difference between the car's sale price and the loan balance. Matt, with a low credit score and no refinancing options, saw this as a necessary last resort to manage his overwhelming financial burden.

Voluntary repossession has benefits

Surrendering your car to the bank isn’t fun, but it has advantages, such as:

  • Avoid repo costs: 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.
  • Avoid surprises: 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.
  • Avoid losing personal items: 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.
  • Avoid embarassment: 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.

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.

How to surrender your car to the bank

If you can’t afford your car payment anymore, you can surrender the car to your bank. Here’s how:

  1. Contact the bank.
  2. Explain that you can’t afford to make car payments and want to surrender your car to the bank.
  3. Ask if you will owe any money after the car is surrendered and sold (i.e. deficiency balance).
  4. Request written documentation of any agreements associated with the surrender, including the remaining loan balance, potential fees, and any other penalties.
  5. Schedule a date and time to return the vehicle.
  6. Clean out the car and retrieve all your personal belongings inside it.
  7. Take photos of the vehicle’s condition before you return it to avoid further liability.
  8. Obtain written documentation of the car’s repossession after you drop it off.
  9. Make a plan with the bank to pay off any remaining costs related to the car.
  10. Work to rebuild your credit after repossession.

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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