How Will a Voluntary Surrender Impact My Credit Score?

Quick Answer

A voluntary surrender is turning your vehicle over to the lender because you’re unable to make your auto loan payments—and it will hurt your credit. However, voluntary surrenders may not look as bad on a credit report as a repossession, so they may be a better option if offered.

A hand holding car keys holds them above another hand with a car in the background.
Dear Experian,

I am considering a voluntary vehicle surrender rather than letting my car be repossessed. What ramifications can I expect, both financially and on my credit report and credit scores, if I agree to surrender my vehicle to the creditor?

- COF

Dear COF,

Voluntarily surrendering your vehicle can have a serious impact on your credit scores. The consequences for a voluntary surrender may not be quite as bad as having it repossessed, but it is still considered a derogatory event.

Voluntary Surrender vs. Repossession

"Surrendering your vehicle" and "repossession" are similar in financial terms. You are unable to make the loan payments, so the lender is taking the vehicle back. The lender then sells the vehicle to recoup as much of the unpaid debt 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, 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 that happens, both the original account and the collection account may remain on your credit report for up to seven years from the original delinquency date.

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.

Voluntary Surrender on a Credit Report

When you voluntarily surrender your 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, as well as any missed payments in the account history.

If the bank has to come take the vehicle, however, they will report the account as a repossession. That will be reflected on your credit report, as well.

Both are serious negative marks on your credit, but a voluntary repossession may hurt your credit scores slightly less than a repossession.

How to Rebuild Scores After a Voluntary Surrender

Under some circumstances, a voluntary surrender might be necessary, although not ideal. If you have had a voluntary surrender and want to begin rehabilitating your credit, here are some other steps you can take:

  • Bring any past-due accounts current. If you are past due on any other credit accounts, you should bring those accounts current as soon as possible. Payment history is the most important factor in credit scores, so making all payments on time going forward is key.
  • Pay off any outstanding debt. If you still owe a remaining balance on your vehicle loan after the vehicle has been sold, contact the lender and make a plan to repay that amount as soon as possible. If you have any other outstanding debts, such as collection accounts, paying them off can also improve your scores right away.
  • Reduce balances on your credit cards. Your credit utilization rate is a key factor in credit scores, so paying down any high credit card balances and keeping them as low as possible will benefit your scores.
  • Order your free Experian credit score. Along with your credit score, you will be provided with a list of the risk factors that are currently impacting your score the most. These factors can help you understand what steps you can take to begin increasing your credit scores.
  • Add your utility and streaming service payments to your report. You can sign up to add your on-time utility, cellphone and streaming service payments to your credit history with Experian Boost®ø, which can help you improve your scores right away.

Thanks for asking.

Jennifer White, Consumer Education Specialist

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