Voluntary Repossession Explained

You can elect voluntary repossession when facing default on an auto loan. This may seem counterintuitive, but it can present loss-mitigation options, meaning you will actually save money over defaulting the normal way. You may also have a chance to save your credit with voluntary repossession over involuntary repossession. To gain these benefits, borrowers who know they will absolutely face default soon often elect simply to surrender their asset.

Voluntary Repossession Is Still Repossession

Before considering the benefits of voluntarily surrendering your car, you should realize this is not a way to get out of repossession. When you take an auto loan, you use the car itself as collateral on the debt. If you default, the lender seizes the car to make up the difference. In a typical repossession, the lender will not tell you when or where it will take your car away. You will simply have the asset seized, usually at an inconvenient time. Voluntary repossession just means you have agreed to turn the asset in yourself at a given time to a given place. You have still defaulted on the loan.

Voluntary Repossession Saves Costs

The main reason people elect voluntary repossession is to save a small amount of money. If you allow a lender to repossess your vehicle, the lender will send an agent to do this. The agent charges you a fee to take your car to the lot, and then you will pay for each day it is housed at the lot. The lender does not cover any of these costs, and they can add up to several hundreds of dollars. You can cut out the middle man when you know you have defaulted and will have your car repossessed. Just tell the lender there is no reason to send an agent. Then arrange for a time and place to turn in your car.

Voluntary Repossession Saves Credit

You will have a record of default on your credit report if you elect voluntary repossession. You cannot stop this from occurring, but you can mitigate some of the other problems you may face on your credit score. By contacting a lender right away to make arrangements, you can ask the lender not to continue reporting your missed payments in exchange for turning in the asset quickly. Most lenders will be willing to work with you because voluntary repossession saves them money as well.

Voluntary Repossession Reduces Stress

One of the biggest challenges involved in default is stress. Borrowers often get phone calls at work or school, and they may even have repossession agents showing up at their homes. This can be stressful on the family of a borrower as well. Instead of allowing this to occur, you can simply cooperate with the lender who is trying to recover money from you. Arrange a payment schedule to cover the cost of the default, and take your car in yourself. Lenders will be much more likely to offer you options like a payment schedule if you have responded to their calls and notified them of your intent to default. 

Can the military take your pay for a voluntary repossession?

Voluntary repossession is a form of default and repossession. The main differences, and advantages for that matter, are you do not have to pay repossession fees, and the repossession will appear as voluntary on your credit report. This can minimize the amount of financial damage you endure as a result of your default, but it does not excuse you from terms of default. If you still owe money on the loan after repossession, you will have to make those payments. This can include a docking of your pay, even military pay, to repay your obligation to the lender.

Will voluntary repossession have an effect on using my VA loan?

Your past experience with voluntary repossession may affect your VA home loan if the default occurred on a property; specifically, it may be problematic if you forfeited a home with an active VA loan through voluntary repossession. As a general rule, any default should be at least two years old, and the applicant must have 12 months of positive credit history to be eligible for a VA loan. The VA will consider an applicant with a previous foreclosure or bankruptcy. If you defaulted on a VA home loan in the past, however, you must ensure that the VA loan was repaid in full and you have no further liability to the loan prior to seeking a new VA loan.

Do you have to advertise a voluntary repossession?

You do not have to advertise a voluntary repossession. When you forfeit your vehicle back to the lender, the lender will attempt to sell the vehicle for the highest amount possible in order to recover on the debt. You may be financially liable for any difference in the sales price and the remaining balance on the loan. If you advertise the car for auction, you may have a better chance of selling it at a high rate. However, this is not your responsibility, so it is up to you whether to pursue this option or allow the lender to do it on their own.

Does the FHA allow borrowers to have voluntary repossessions of vehicles?

When you apply for an FHA home loan, any previous voluntary repossessions on your record could harm your application. The FHA generally requires good to great credit. Since a repossession of any type, even a voluntary one, will damage your credit, it can also harm your chance of securing an FHA loan. Fortunately, though, a voluntary repossession will not affect your credit after a few years. If you have been current on all your loans for at least 12 months, have recovered your credit score to over 700 and have resolved any liability in connection with your repossession, you may be eligible for an FHA loan.

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