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Voluntary Repossession Can Damage Credit Scores

Dear Experian,

I am trying to trade-in my car; however, I am upside down on my current car loan. If I trade it, my payments will be really high. The salesperson is trying to convince me to do a voluntary repossession on my current vehicle. She said that it would not be a big hit on my credit and my new car payment will then be lower. I told her that was something that I really had to think about and research. I don’t know much about what she was talking about, and I did not want to make an impulse decision.


Dear NTN,

You were wise not to make an impulse decision, and even wiser to decide to do some research first. It can be tempting to listen to a sales person who is trying to earn a commission if it means you can drive away with the car you want.

Unfortunately, the information the salesperson gave you wasn’t accurate. A voluntary surrender indicates that the lender took the car back because you were unable to continue making payments on the loan. It is considered very negative and would almost certainly have a substantial impact on your credit report and credit scores.

A voluntary surrender should be your last resort. However, if you must negotiate the surrender with your creditor, be sure you understand the terms. The vehicle will likely be sold to recoup as much of the debt as possible. If there is a balance remaining and you don’t pay it, it could be turned over to a collection agency. The collection agency can then report the debt as well, which will add a collection account to your credit history in addition to the original account, which will be reported as a repossession.

Even if they don’t try to collect difference in the amount of the loan and the amount recovered, they may report the forgiven amount as income to you for which you would be liable for income taxes.

The best thing to do would be to delay purchasing a new car until you pay off the debt on the one you currently have.

Thanks for asking.
The “Ask Experian” team

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