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Voluntary Surrender

The Impact of a Voluntary Vehicle Surrender

Dear Experian,

I am considering a voluntary vehicle surrender. 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 may be slightly better than having it repossessed. Unfortunately, both are very negative and will have a serious impact on your credit scores.

Voluntary Surrender VS. Repossession

Surrendering your vehicle and repossession are very similar in financial terms. You are unable to make the loan payments, so the lender is taking the vehicle back. It will be sold to recoup as much of the debt you owe 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 on much more positive emotional terms, 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 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 the 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. If the bank has to come take the vehicle, they will report the account as a repossession. That will be reflected on your credit report, as well.

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

Thanks for asking.
Jennifer White, Consumer Education Specialist

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