However, in this situation, you can also consider a voluntary repossession or voluntary surrender meaning you contact your dealership or lender and return the property. Either way, your credit will take a hit, but with an involuntary repossession, you might need credit repair services in Dallas, Texas to recover. You can avoid a major financial hit by choosing voluntary repossession.
How Does Voluntary Repossession Work?
If you have to choose voluntary repossession, you should first tell the lender about your situation—you can’t pay the debt anymore and want to return the vehicle or property. To return the property, decide a time and place to meet and record the details for your records. However, this doesn’t mean you’re done with your debt.
You may need to pay late payment fines or other additional fees. Then your bank or the creditor will sell the car and you’ll be notified about the sale. You can also participate in the property auction, but the only accepted payments are cash. You’ll get all the sale details of the default property or vehicle in the form of a statement.
The difference between the amount the car is sold for and what you owe to the creditor is called a deficiency balance. You have to pay this deficiency balance no matter what type of repossession it was. If you can’t pay the deficiency balance, your lender can get help from a collection agency to recover their money. Having a collection amount on your credit reports negatively impacts your credit score more heavily than repossession.
Effects of Involuntary Repossession
1. There’s an Effect on Your Credit
In the case of repossession, two things go on the defaulter’s credit report—repossession and late payments. This information will stay on credit card reports for more than seven years, and the magnitude of its impact on your credit score depends on your credit history.
2. You Still Have to Pay the Loan
Returning any default property voluntarily does not cancel out the loan. After the repossession, the lender resells the property in an auction to recover the loan balance. The borrower is responsible for paying the remaining loan balance after the sale, called the deficiency balance.
3. It’s Difficult to Get a New Loan
Having a recent repossession on your credit report harms your score, particularly for the loan you already took and were unable to pay on time. For example, if you’re unable to pay a car loan, next time, you may be seen as a high risk for a car loan and could be strapped with a higher interest rate. However, voluntary surrender will be on your reports, and the lender can see you took a proactive approach.
When Should You Opt for a Voluntary Repossession?
If you’re in a situation where you know you cannot pay your property payments and will lose the property eventually to an involuntary repossession, voluntary repossession can save you to some extent.
With voluntary repossession, you don’t need to worry about a repo team showing up suddenly to seize your property, and you will avoid some additional fees that come with involuntary repossession.
To Wrap It Up
After a voluntary surrender, your next step should be to restore your credit. A repossession will not stay on credit reports forever, and you can improve your credit score in different ways. People with good credit can help someone with bad credit, and once you learn if you can afford how much a credit repair lawyer costs, you can opt to go in that direction or seek help from a reliable credit repair service, like The Phenix Group.