How Do Voluntary Surrender and Repossession Differ?

Pensive man at laptop in home office
Dear Experian,

If I voluntarily surrender my car to the financial institution carrying the loan, will it make a difference on my credit report? Or is it a repossession no matter how it is repossessed?


Dear HAN,

While a voluntary surrender and a repossession are both considered negative as far as your credit is concerned, the impact of a voluntary surrender may be slightly less severe. Because a voluntary surrender means you worked with the lender to resolve the debt, future lenders may view it a little more favorably than a repossession when they review your credit history. However, the difference will likely be minimal in terms of your credit scores.

What Is a Voluntary Surrender?

When you finance a vehicle, the lender owns it until the loan is completely paid off. The vehicle is the collateral that secures the loan, and the lender has the right to take possession of it if you stop making payments.

A voluntary surrender occurs when you contact the lender on your own to let them know you can no longer make payments and make arrangements to give up the vehicle. You still lose the vehicle, but surrendering it voluntarily allows you to avoid the stress and potential embarrassment of a repossession.

What Is Repossession?

Repossession is when a lender takes your vehicle because you've stopped making payments on the loan the vehicle secures. In most cases, the lender has made several attempts at communication with the borrower to no avail.

Often, there are negative feelings on both sides, and the vehicle may be taken in the middle of the night or while the borrower is at work to avoid confrontation.

How Do Voluntary Surrenders and Repossessions Affect Credit?

The most important factor in credit scores is your payment history. Lenders determine the likelihood that you will make future payments on time, in part, by looking at how you have managed your credit accounts in the past.

Whether you return the car yourself or it's repossessed, it means you haven't repaid the debt as agreed. In the end, that is something lenders look at when determining the likelihood that you will repay your debts on time in the future, and it can hurt credit scores.

Is a Voluntary Surrender or Repossession the Better Option?

Although both voluntarily surrendering your vehicle and having your vehicle repossessed are considered derogatory, the benefit to a voluntary surrender is that it shows you were communicating and cooperating with your lender. By returning the car, you are taking responsibility for your financial issues and trying to work with the lender—rather than forcing it to take more drastic action.

You also avoid the uncomfortable situation of having a towing company come and remove your car from your home or place of employment. And, you may avoid owing additional fees, such as towing charges.

By working with your lender, you are also maintaining a more positive relationship. Because you aren't completely burning that bridge, the lender may be willing to extend credit to you much sooner after your financial challenges are resolved.

However, you still will be viewed as high risk and will likely pay a much higher interest rate, if you can get approved for a new loan at all.

How Can I Rebuild My Credit?

Rebuilding your credit scores after a voluntary surrender or repossession may take time, but you can start right away. Here are some tips to begin improving your credit:

  • Bring current any other past-due accounts. If you are behind on any other accounts, bringing them current is the first step to rehabilitating your credit scores.
  • Pay off any outstanding debts, such as collections or charge-offs. Even once your vehicle is back with the lender, there may be an outstanding balance after it is sold. Although an account with past-due payment history will still be considered negative, potential lenders may be more willing to extend credit in the future if they see that you've since made good on the debt.
  • Make all your other payments on time. If you have other credit accounts, be sure that all payments on those accounts are made on time, every time. Your recent payment history matters the most. The longer ago your delinquencies were, the less impact they will have, and your more recent positive payment history will be reflected in your scores.
  • Sign up for Experian Boost®ø. Experian Boost allows you to get credit for your on-time utility, cellphone and Netflix® payments. You can add these payments going back as far as 24 months.
  • Order your Experian credit score. You can get your free credit score from Experian anytime. When you order your score, you will receive a list of the risk factors that are most affecting you, which can help you determine what other changes you can make to improve your credit.

Thanks for asking.
Jennifer White, Consumer Education Specialist