Surrendering your vehicle and repossession are very similar in financial terms.

Can Repossessions Be Removed From a Credit Report?

You are unable to make the loan payments, so the lender is taking the vehicle back. It will be sold to recoup as much of the debt you owe as possible. The emotional difference between the two can be day and night — literally. When you surrender the vehicle, you return it to the lender on much more positive emotional terms, usually during business hours. When a lender repossesses the vehicle, they may send someone in the middle of the night to take it while you sleep, which can be much more distressing for everyone involved.

By voluntarily returning the vehicle, you are taking some responsibility for the debt you owe. For this reason, lenders may consider a voluntary surrender to be slightly less negative than a repossession. You may also save money by avoiding the additional fees that often occur when a vehicle is repossessed, such as towing charges.

Be sure you completely understand the terms when you make the voluntary surrender. The lender will resell the vehicle, and the proceeds will go toward the balance you still owe on the loan. If there is still a balance remaining after the sale and you don't pay it, it could be turned over to a collection agency.

This may result in a collection account being added to your credit history. If the remaining balance is forgiven, that amount will likely be counted as additional income, which means you will have to pay taxes on it. When you voluntarily surrender the vehicle, your credit report will indicate that fact in the status of the account.

It will be listed as a voluntary surrender and any remaining balance will continue to be reported. If the bank has to come take the vehicle, they will report the account as a repossession. That will be reflected on your credit report, as well. Both are very negative, but a voluntary repossession may hurt your credit scores slightly less than a repossession. Thanks for asking. Stay up-to-date with your latest credit information for free and learn what lenders might see when reviewing your credit.

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Or you could try to buy back the vehicle by bidding on it at the repossession sale. Of course, if you reclaim your car, your future payments must be made on time, and you must meet the terms of your reinstated contract to avoid another repossession. But a resale price that is below fair market value may indicate that the sale was not commercially reasonable.

A repo will tank your credit

Regardless of the method used to dispose of a repossessed car, a creditor may not keep or sell any personal property found inside. In some states, your creditor must tell you what personal items were found in your car and how you can retrieve them. Your creditor also may be required to use reasonable care to prevent anyone else from removing your property from the car.

Those might include fees related to the repossession and early termination of your lease or early payoff of your financing. In most states, your creditor is allowed to sue you for a deficiency judgment to collect the remaining amount owed as long as it followed the proper procedures for repossession and sale. Similarly, your creditor must pay you if there are surplus funds after the sale proceeds are applied to the outstanding contract obligation and related expenses, but this situation is less common.

You may have a legal defense against a deficiency judgment if, for example, your creditor breached the peace when seizing the vehicle, failed to sell the car in a commercially reasonable manner, or waited too long before suing you. An attorney will be able to tell you whether you have grounds to contest a deficiency judgment.

Some creditors might not provide you with financing unless you agree to the installation of an electronic device that prevents your car from starting if you do not make your payments on time.

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How your state treats the use of these devices could affect your rights. Contact your state consumer protection agency or an attorney if you have questions about the use of these devices in your state.

Training A New Recovery Agent With Real World Repossession

Contact your creditor as soon as you realize you will be late with a payment. Many creditors work with consumers they believe will be able to pay soon, even if slightly late. You may be able to negotiate a delay in your payment or a revised schedule of payments.

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If you can reach an agreement to change your original contract, get it in writing to avoid questions later. However, your creditor or lessor may refuse to accept late payments or make other changes in your contract — and may demand that you return the car. But even if you return the car voluntarily, you still are responsible for paying any deficiency on your contract, and your creditor still may enter the late payments or repossession on your credit report.

Finally, if you are facing, or already in, bankruptcy, ask an attorney for information about your rights to the vehicle during that process. To learn more about your rights and specific repossession requirements in your state, contact your State Attorney General or local consumer protection agency. You can get the phone numbers for these organizations in your phone book, through directory assistance, or through Web directories. If you need help in dealing with your contract, consider contacting a credit counseling organization.

Many credit counseling organizations are nonprofit and work with you to solve your financial problems.