Trouble follows the repo man — trouble for your credit score and your chances of getting a loan in the future.

What’s more, you could still be required to pay for the car even if it is repossessed.

Returning the car to the lender or literally having the repo man take it away will cause about the same damage to your credit score, according to Rod Griffin, spokesman at Experian. Both are considered types of car repossession — either “voluntary” or “involuntary” on your credit report — and will remain on your report for seven years. During those seven years, you will likely pay a higher interest rate for any future loans and you may be denied a loan altogether. The upside of surrendering a car is that you are viewed more positively by lenders, and they might give you another car loan sooner.

While it may seem like you have no choice than a car repo (voluntary or not), there are options. The first step is to contact your lender and discuss a loan modification. A lender would rather have you keep your car and make the payments than repossess it, so ask if they would extend your loan to reduce your payments so you can get back on track.

While this will cost you more in interest, it’s a better alternative to car repossession. The sooner you talk to your lender about your financial problems, the better position you’ll be in to have them work with you on a solution.

If the lender won’t work with you or you still can’t make the payments even with longer loan terms, then you may need to submit to a car repo. Before you voluntarily surrender it, consider selling the car yourself, paying off the car loan and buying a cheap car, sharing a car or using public transportation until you improve your finances.

If the lender repossesses the car, it will sell it at auction, which will bring in less than if you sold it yourself and most likely less than what you owe the lender. You’ll be held responsible for the difference unless the lender forgives the loan. The lender might forgive the difference if it’s not huge, depending on how far behind you are, whether you’ve tried to work with the bank and if you are voluntarily submitting to car repossession. Even if the debt is forgiven, you’ll owe federal taxes and possibly state taxes because it’s considered a monetary gift.

Do some research on the third-party car pricing sites to see how much you could sell it for in a private-party sale. This will allow you to get the most for the car. But if it’s not enough to pay off your car loan, you’ll still be stuck. The loan needs to be paid in full for the lender to release the title so it can be signed over to the new owner.

You’ll need to determine what you can sell your car for, and where to get the cash to make up the difference to pay off your loan if necessary. Possible options include borrowing the money from a relative or friend, using your savings or borrowing from an existing home equity line of credit.

All of these options have drawbacks. But having your car repossessed has serious ramifications that could put you even further behind financially and potentially leave you without any transportation for a much longer period.

Ask the adviser

If you have a car question, e-mail it to us at Driving for Dollars. Read more Driving for Dollars columns and Bankrate auto stories.

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