by Jackie Lohrey
There are three ways to deal with a car loan when it is delinquent and you cannot update it. The first and best option is to sell the vehicle and repay the loan. The second option is to wait for the lender to regain possession of the vehicle and the third is to negotiate a voluntary surrender. Although it may seem that there is not much difference between recovery and voluntary surrender, both the process and the consequences are often very different.
Reactive vs. Proactive Measures
Recovery and voluntary surrender are similar in that they both result in the loss of your vehicle and both actions remain on your credit report for the next seven years. However, in many cases, this is where their similarities end.
The lender is in the driver’s seat with recovery. Some states do not require lenders to provide advance notice, and no state law says a lender must tell you when or where the repository will be held. Your vehicle will simply be towed from your home or a public place.
Rather, a voluntary recovery occurs at a specific time and place. One main difference is that this is a proactive response to a bad financial situation. It shows that you are taking responsibility rather than forcing the lender to take legal action.
Short-term cost comparisons
Recovery generally involves an intermediary, whereas a voluntary surrender generally only involves you and the lender. Most lenders hire a repossession company that charges you, not the lender, for towing your car to a storage location. You may also be responsible for paying storage costs until the vehicle is sold. These costs add to the loan balance and are subject to interest. By arranging for a time and place to drop off your car, you can eliminate agent fee, towing expenses, and possibly storage costs, saving you hundreds of dollars.
Although the lender will sell your car in both repossession and voluntary surrender, the financial responsibility for a poor balance can vary. Although some state laws limit a lender’s rights to collect a bad balance, this is the exception, not the rule. In most states, you are still responsible for the outstanding loan balance after subtracting the sale proceeds and adding recovery costs. With a voluntary waiver, you may be able to negotiate with the lender. For example, a lender may agree to waive its right to collect the deficiency or agree not to report the default to the credit reporting agencies.