Is Voluntary Repossession Bad For Your Credit?

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Voluntary repossession is a decision that a consumer can make if he or she would like to return a vehicle back to the lender. The consumer may have many reasons for the voluntary repossession such as an expense burden, cross country moving plans or debt fatigue. A person who is considering a voluntary repossession may need to know some additional information about it before he or she makes the decision to perform it. If you are considering a voluntary repossession, you may be wondering is-voluntary-repossession-bad-for-your-credit/. The following information explains the process of a voluntary repossession, and it answers the question of whether such a repossession will affect the consumer’s credit score.

 

The Basis of a Repossession

A repossession is the retrieval of collateral by a lender who has not received timely payments from the borrower. The borrower signs a contract and agrees to use the vehicle as collateral on the loan, which gives the lender every right to retrieve the vehicle if the consumer does not pay the advance. Most auto loan lenders use the vehicle as collateral, and they take the vehicle once the consumer gets behind a certain amount of money. The amount of time that the account can stay in default before a repossession occurs depends no the lender and the specific state. Some states require their lenders to give applicants at least 20 days of notice and the option to resolve the debt before they recover the vehicle.

What Is a Voluntary Repossession?

A voluntary repossession is a repossession that the consumer negotiates with the lender. The consumer lets the lender know that he or she is willing to return the vehicle. This usually happens when the debtor is so far behind in the payments that he or she knows that a repossession will occur. The debtor is trying to save face and aggravation by allowing the lender to pick up the vehicle without fussing or fighting.

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How to Initiate a Voluntary Repossession

The consumer can initiate a voluntary repossession by contacting the lender and explaining that he or she would like to return the vehicle. The lender may ask the consumer to sign a form stating that he or she agrees to return the vehicle before it comes to take it off the person’s hands. The consumer would then need to read the form thoroughly and then return the signed copy to the lender immediately. The lender will come and repossess the vehicle at its earliest convenience.

Is Voluntary Repossession Bad for Your Credit?

A consumer should not make the mistake of thinking that he or she can avoid a mark on the credit report by simply returning the vehicle. The credit bureaus still count the voluntary repossession as a repossession. The consumer has still defaulted on the loan whether the person returns the vehicle or not. Some people think that returning the vehicle will make the debt go away, but such is not the case. The repossession will stay on the consumer’s report for a number of years after it occurs. It may be wiser for a consumer to try to find a way to pay the debt than to give up and allow the creditor to reclaim the vehicle. Everyone’s situation is different. What works for one person may not work for another person.

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The Benefits of a Voluntary Repossession

Many benefits still exist to getting a voluntary repossession even though the consumer cannot wipe the repossession from the record. One benefit of a voluntary repossession is that it relieves stress. Some people worry about their debts Constantly. Performing a voluntary repossession may feel like a weight has been lifted from the consumer’s head. The cost of automobile insurance, fuel and repairs is sometimes enough to send an already poor person into destitution. The burden may be too heavy. Voluntary repossession may be a good idea under such circumstances. Peace of mind is one of the best benefits that a person can have sometimes. The consumer will still have to pay the debt, but he or she may be able to work out a payment plan with the lender.

A voluntary repossession can save the consumer money, as well. When a consumer allows the car note to go into repossession status, the lender usually sends a third-party agent to pick up the vehicle. That third-party agent provides towing services and storing services. The lender does not foot the bill on those services. Instead, the lender adds the costs of those services to the remaining balance on the car note. The consumer may end up having to pay hundreds of extra dollars just to get the vehicle back. The additional fees remain on the bill even if the consumer does not want the vehicle back. In some cases, the lender is willing to take one or two payments to return the vehicle. In other cases, the lender asks for the entire outstanding balance on the car before it will help.

A voluntary repossession also lets the lender know that it can trust the consumer. Many people start hiding their cars when they know they have defaulted on their loans. They avoid their lender’s call and disappear into the abyss when because they know that they are up for a repo. A person who offers a voluntary repossession is showing the lender a little bit of respect. This person is trying to act in an honorable manner even though the payments are behind.

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A consumer should consider a voluntary repossession if climbing out of the hole is impossible, and the person just wants to have peace of mind. The lenders may first ask if there is anything that the consumer can do. However, they will accept the voluntary repossession if the consumer desires to do it.