The lender may call you to ask why you did not make a payment. Involuntary repossession occurs when the lender sends a debt collector to seize the defaulted property in order to secure the loan. 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. Another reason to choose voluntary repossession is that it might look better on your credit report. All of this activity will show on your credit for seven years and make it difficult to get loans in the future without making large down payments, paying add-on fees, and high interest rates. In either case, you will be doing severe damage to your credit rating. But a cramdown doesn't simply wipe away the loan debt. Although voluntary repossession is a much better alternative to having a lender repossess your car involuntarily, it has both pros and cons. One frequently overlooked path—and often the least expensive choice—is to transfer the lease to someone else. Alternatives to Returning a Financed Car. Letters and calls can go on for a few months. Repossessions, like missed payments, fall into this category. Is seeking bankruptcy protection a good idea? Assert your affirmative defenses.
Although most negative marks remain on your credit report for seven years, they count for less the older they get. Negotiate a Better Deal for Lower Car Payments. Debt sent to collections may also negatively impact your credit score. Just keep in mind that doing so means you'll pay more in interest over the life of the loan. Ultimately, the right option for you will depend on how much your car is worth, how much you owe and whether you've defaulted on the loan. Summary: Voluntary repossession gives you more control of when your vehicle gets taken away.
Knowing how your lender handles voluntary repossessions will help you decide whether it's worth doing. However, if your car gets repossessed without your involvement, you should expect to receive all of these adverse outcomes in addition to others. Aside from keeping you from being able to secure credit and loans moving forward, it may keep you from being able to get another financed vehicle. In case you can't afford a single car payment, loan deferment is common. "Secured" means that you gave the lender a lien on collateral. But, you may face no alternative with economic uncertainty, layoffs, and inflation. You can sometimes add a statement to your credit reports explaining the circumstances that caused the repossession. It's also a good idea to call other auto lenders to see if you can get a better payment plan by refinancing the loan. You may owe deficiency costs if the car has insufficient resale value. They will then send you a document called the "statement of realization" which will detail how much the car was sold for and whether you still owe any money.
Still, you'll be paying far more for the car because of this added cost and the extra interest. This can happen if you put very little down on the vehicle when you originally bought it or if the value of the vehicle drops quickly. Bankruptcy wipes out certain debts and may help you with your car payment situation. You learn more about bankruptcy and how filing bankruptcy can get rid of debts. Don't ignore their calls and letters. There's also a chance that, since you're taking responsibility for your debt, that lenders could view the repossession less negatively. That includes any unpaid balance on the loan, leftover interest, and any money that the lender spent on towing, storing, and selling the car. Written by Attorney Thomas J. Pearson. We'll break down the frequently asked questions, so you can determine what move works best for your situation. This might be a helpful option if you have a good credit score—usually meaning a score of 670 or higher—and can qualify for a low interest rate. How Do Car Repossessions Work? You can start the voluntary repossession process by contacting the lender. If the repossessing agent has done everything correctly and your vehicle or other property is gone forever, there is little you can do but try to rebuild your credit history and improve your credit scores.
However, a cramdown doesn't just simply clear the slate for the loan terms that went unpaid. They both have similar processes, but the biggest difference is how much effort you're willing to put in.