When you can no longer afford your car payments, voluntary repossession may seem like the best way to get your car loan off your hands. But returning your car to your lender could have serious financial consequences, including your account going into collections and your credit taking a hit.

How does a repossession affect your credit score?

A repossession will have a serious impact on your credit score for as long as it stays on your credit report—usually seven years, starting on the date the loan stopped being paid. But in addition to the repossession being noted, this process often includes the following “dings” to your credit:

How long does it take to repossess a car after missed payment?

At your lender’s discretion, you could be in default of your loan within 30 days of a missed payment. Vehicle repossession. Once you’re in default, your lender can repossess the vehicle at any time, which is an additional mark against your credit.

How does a repo show up on your credit report?

The repo. A repossession will show up on your credit report under “current manner of payment” for the loan, according to TransUnion Credit Report User Guide. A code 01 means paid as agreed, while code 08 indicates a repossession, and 8A a voluntary repossession.

What’s the difference between voluntary and non-voluntary repossession?

With a voluntary repossession, you eliminate the chaos and cost of dealing with the repo man. Easier experience: In a standard (non-voluntary) repossession, lenders send a repossession agent to collect the vehicle—and you never know when that will happen.

What are the benefits of a voluntary Repo?

The primary benefit of a voluntary repossession is that the costs associated with the process tend to be significantly less than those associated with a forced repossession, which could save you a lot of money as you work to pay off the remaining balance of the debt.

What happens to a car after a voluntary surrender?

The voluntary surrender can remain on your credit report for seven years from the date of the first missed payment. After the car is returned, the lender sells it at an auction to recoup the amount owed.

Is it better to surrender your car or have it repossessed?

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.

When is it time for a voluntary repossession?

A voluntary repossession should be a last resort. First, call your lender and explain the situation. Chances are good that they’ve helped other borrowers in your situation before. If you can’t arrive at a solution with your lender and you’ve exhausted all other options, it may be time to consider voluntary repossession.

What to do if your car is repossessed by a bank?

Redeem: To put everything behind you, redemption might be an appealing option. This involves paying off the loan entirely (all of the past-due payments, plus the remaining loan balance) and covering all of the repossession-related costs. In other words, you just buy the car and pay the legal fees.