Voluntary Repossession: How It Affects Your Credit


When you get behind on your car payments, it might feel like you have no options ahead of you. However, if you’re anxious about having your car forcibly repossessed by the bank, there is a way to take control of the situation.

giving car keys back

A voluntary repossession allows you to hand your car back to your lender on your own timeline. You can do this instead of waiting for it to be towed from your home or workplace.

In a situation where repossession is unavoidable, a voluntary repossession does come with a few advantages. However, a repossession of any kind will still have dramatic effects on your credit history, and consequently, your future ability to borrow.

Learn more about what a voluntary repossession is and the effect it has on your credit and finances. We’ve even thrown in a few tips to avoid getting in this situation in the first place.

How does voluntary repossession work?

Voluntary repossession is a type of loan default where you voluntarily surrender your vehicle back to your lender to be used as payment towards your outstanding balance.

Your lender can repossess your car at any time after you default on the auto loan in most states. However, a voluntary surrender is initiated by you, the borrower. You arrange a drop-off time and location that works for both you and the lender.

The repossessed car is then sold at an auction and the money raised there goes towards whatever you owe. The exact intricacies and legal processes of a repossession, both voluntary and forced, vary from state to state.

You can find out the specifics of your state’s laws regarding auto repossessions by contacting your attorney general’s office.

Voluntary Repossession vs. Forced Repossession

While both voluntary and forced repossessions result in losing your car, there are a few advantages of choosing to turn in your car on your own. The most obvious, of course, is that you get to be in control of the situation and avoid the repo man. A voluntary surrender helps you avoid a potentially embarrassing situation.

You won’t have to worry about when your car will be towed, like at work in front of your colleagues or at home in front of your family. Instead, you get to arrange for a scheduled drop-off.

You also don’t have to worry about getting your personal property back out of the car after it’s been towed. This can be difficult, depending on the details of your auto loan agreement. In addition, you may only have 24 hours to make arrangements to retrieve your belongings, so it’s better to avoid this situation altogether.

A Voluntary Repossession Can Save You Money

You could save as much as several hundred dollars by voluntarily surrendering your vehicle. That’s because you are responsible for any fees the lender incurs as part of the repossession process. This not only includes the towing of your vehicle but also having it stored before the auction occurs.

Collectively, these fees can start to add up. Several hundred dollars may not seem like a lot in the grand scheme of losing your car. However, it could set you back further on some of your other financial obligations.

So, it’s wise to avoid a forced repossession if at all possible. If you know that repossession is inevitable, a voluntary surrender on your own terms might be in your best interest, both emotionally and financially.

How does a voluntary repossession affect your credit score?

A repossession of any kind is serious business when it comes to your credit score. However, voluntary surrender of your vehicle won’t impact your credit scores quite as much as a forced repossession.

The negative item on your credit report is also listed differently for a voluntary repossession versus a forced repo. Future lenders can see that you willingly gave up your car to repay your debt. So, while it’s still not ideal, it’s a slight advantage compared to your other option.

How long does a voluntary repossession stay on your credit report?

A voluntary repossession will stay on your credit report for up to seven years. However, you’ll notice your credit scores beginning to rebound after a few years.

To expedite the process, ask your lender to stop reporting your missed payments since you’ve saved them time and money by voluntarily surrendering your vehicle. This will at least prevent your credit score from becoming further damaged by late payment entries.

Getting a Car Loan in the Future

With a repossession listed on your credit report, it will be challenging to get credit in the future. Car loans will be restricted to lenders with extremely lax guidelines. This means you won’t be able to borrow as much, and you’ll have to pay exorbitant interest rates.

If you can’t get approved for a car loan or can’t afford your car payments, you might have to save up and pay cash for a cheap car. It might not sound ideal, but getting yourself into a high-interest car loan with expensive car payments could be setting yourself up for difficulty once again.

Driving an old car or taking public transportation might be better options than entering a cycle of over-burdensome debt. Hopefully, you can save up some money without having a monthly car payment and benefit from some peace of mind.

Will you still owe money after a voluntary repossession?

Another major consequence of a voluntary repossession, and a forced one, is the potential of a deficiency. The auction for your car may not cover the remaining loan balance of your loan, plus any fees tacked on during the repossession process.

The auto lender subtracts the auction amount from what you owe, and anything leftover is referred to as a deficiency. Unfortunately, you are not exempt from paying this remaining balance.

The amount shows up on your credit report next to the repossession notation until it is paid off. Then, in many situations, the lender sells the remaining loan balance to a collection agency. This can result in aggressive phone calls and letters as they try to get the money from you.

Collection Accounts

You’ll also have a separate listing on your credit report (and a corresponding drop in your score) for any amount in collections. If you can, try to work out a payment plan with your lender.

If you don’t come to a payment agreement, lenders in most states can sue you to collect the deficiency amount.

Judgments & Wage Garnishment

This is serious because a judgment can lead to wage garnishment and is added to the public record section of your credit report, which is even worse for your credit score. Consequently, you should try to avoid a judgment at all costs.

If you don’t come to an agreement with your lender before your hearing, be sure to show up in court to present your side of the story. Also, consider hiring legal help.

A knowledgeable lawyer may be able to help your case if you can find proof that the lender didn’t follow all the proper legal procedures when selling your car. Obviously, this is a worst-case scenario, but it might be worth it if there’s no other way to prevent a judgment.

Can filing for bankruptcy help save your car?

Sometimes bankruptcy can prevent your car from being repossessed. However, it’s important to check your eligibility and understand the ramifications of bankruptcy. Just like a car repossession, it has long-lasting effects on your credit scores.

So how can a bankruptcy potentially help you keep your car? The first option, which is a little complicated, is through a Chapter 7 bankruptcy. You must meet certain income maximums to qualify for a Chapter 7. If you do, you’ll need to fill out a Statement of Intention explaining how you’d like to handle your debt.


The first option for a car loan is a redemption, which allows you to pay off the current market value of the car. The downside is that you must pay it in a single lump sum. But the good thing is that if you owe more than the current value, the deficiency is discharged.


Your other option in Chapter 7 is a reaffirmation, which provides a new contract between you and your lender. You continue to make monthly payments but must accept full liability, which means you can’t discharge the debt.

To make this work, however, the judge must believe that you have the financial ability to make those monthly car loan payments. Otherwise, you could still have your car repossessed. Chapter 13 works a little differently than a Chapter 7 bankruptcy.

Rather than having debts discharged, you go on a three to five-year payment plan with your creditors. You may be able to get your car loan included in your payment plan.

You’ll have a single monthly payment each month that is then divvied out among your participating creditors. Often, you pay much less than what was originally owed, and at the end of the repayment term, your debts are settled.

How can you prevent repossession before it happens?

Prevention is almost always a better alternative to mitigating damage to your credit scores and financials due to a voluntary repossession. If bankruptcy isn’t right for you, you can still take other actions before your auto loan gets too close to default.

Talk to your lender about your issues, especially if you’ve fallen behind on your payments due to an emergency. A repossession is both timely and costly for a lender, and they’d much rather make money off your interest payments each month. If you have good credit, you might be able to refinance your car loan.

Renegotiating Terms

You could potentially qualify for a lower interest rate or renegotiate the length of your auto loan repayment period. Of course, by extending your payment schedule, you will pay more interest over time. However, at least you’d be able to afford your car payments and avoid the eventual costs of bad credit.

Selling Your Car

Another strategy to consider is selling your car. Depending on your loan amount and the current market value, you may be able to repay your full loan amount. If that’s the case, you would have to pay the difference to your lender before you could transfer the title to someone else.

If the deficiency is higher than your money in savings, consider finding a part-time job or side hustle to bridge the gap.

Consider selling some belongings on eBay or Craigslist, driving for Uber, or volunteering for extra hours at work. While this isn’t an easy solution, the temporary hardship could help save your car from getting repossessed.

Is it possible to get a voluntary repossession removed from your credit report early?

If you have a voluntary repossession on your credit report, it is possible to have it removed before the seven-year time limit.

Credit bureaus are required to report information that is accurate and verifiable. Therefore, if you check your credit reports and find any inaccuracies or inconsistencies with the way your repossession is listed, you can dispute it.

Working with a Credit Repair Company

In many cases, the dispute process is more effective when working with a professional credit repair firm.

The best credit repair companies, like Lexington Law, have decades of experience in getting defaults removed for their clients. You can certainly tackle the dispute process on your own. However, it doesn’t hurt to get a free consultation to see how a professional could help you.

While going through a voluntary repo is better than a forced one, it still has a significant impact on your credit score. Weigh all of your options carefully and try to address any financial issues as soon as possible. You often have more alternatives available earlier in the process.

Lauren Ward
Meet the author

Lauren is a Crediful writer whose aim is to give readers the financial tools they need to reach their own goals in life. She has written on personal finance issues for over six years and holds a Bachelor's degree in Japanese from Georgetown University.