Voluntary Car Repossession: How It Works & When to Consider It

When you can no longer afford to make your car payments, your lender has the right to take back the car as soon as after the first missed payment, according to state law. While lenders make repossession decisions on a case-by-case basis, virtually all lenders allow you to surrender your car voluntarily when facing repossession.

Rather than waiting for your car to be taken from your residence or workplace, a voluntary repossession gives you more control over the situation. You won’t have to worry about the vehicle disappearing without your knowledge, and you won’t incur costly involuntary repossession fees (such as towing and locksmithing fees) added to your total debt.[1]

Note that while vehicle repossession negatively affects your credit whether you surrender the car or it is involuntarily repossessed,[2] a voluntary repossession may be the better financial option. We detail how the process works and what to expect after repossession below.

Voluntary Car Repossession Process

Once you realize you may have issues making your car payments, you should contact your lender to find out your options. The longer you wait to contact your lender, the greater risk of an involuntary repossession. Keep in mind that if your financial difficulties are temporary, you may be able to work out a solution with your lender to avoid repossession altogether.[3]

If you find that repossession is the only outcome for your situation and all other options (such as the lender extending the terms of your loan or deferring a payment) are not possible, let your lender know that you’d like to do a voluntary surrender. If your lender allows it, you can then arrange a time and place to deliver the car and the keys. This may be at the dealership where you purchased the vehicle or another place, such as an auto auctioneer.

Be sure to document the date, time, place, name, and contact information of the person with whom you leave the car. You may also be asked to sign documents stating that you are aware that you are still responsible for the amount you owe on the vehicle.[4][5][6]

After Voluntary Repossession

After it has your vehicle, your lender may decide to sell it to recoup at least a portion of the outstanding loan amount. If the lender sells your car, you will still be responsible for the remaining loan amount (less the sale price of the vehicle). You may also be subject to some fees, such as late payment fees and/or a prepayment penalty if written in your purchase contract.[4][5][6]

If you are unable to pay or make payment arrangements, the lender may send you to collections. If the lender decides to take you to court, your wages may be garnished until the loan remainder is paid in full.[1] Our related research has more information about your rights and options after repossession, including reclaiming your vehicle.

Future Vehicle Purchases

If you need to purchase or lease a vehicle after a voluntary repossession, the fact that you voluntarily surrendered the previous car and attempted to work with the lender to resolve the situation may work in your favor compared to involuntary repossession. A voluntary repossession lets lenders know that you’ve attempted to handle challenging financial situations as responsibly as possible. However, know that repossession of any kind will usually result in higher interest rates for future loans, as you’ll be categorized as a high-risk borrower.[1]

Repossessions — even voluntary surrenders — can lower your credit score by up to about 150 points and remain on your credit report for about seven years.[7] However, during that time, you may still be able to get a new auto loan.