||Ask Dr. Don
Dear Dr. Don,
I've been unemployed for three months. I don't have any credit card
debt, but I have a high interest car loan. If I know that I can't
make the next payment, should I voluntarily surrender the vehicle
to the lender?
Will I be responsible for paying the difference of
the cost if they auction or sell the vehicle? What would it say
on my credit report? Please help
When a lender repossesses your car, regardless of whether it's a
voluntary repossession or the repo man comes and gets it, you are
responsible for the lender's loss on the car and their costs in
recovering that loss. A voluntary repossession keeps down the cost
because the lender doesn't have to pay anyone to seize the car.
Most states require that the lender notify you of
its plans to sell the car. The lender will usually sell the car
at auction. That means that the car will sell at its wholesale value.
The lender will meet the standard required in your
state to get a commercially reasonable price for the vehicle, but
there won't be any Herculean effort to get top dollar for the car.
If the sales price is less than the loan balance, then you owe the
difference along with any costs the dealer incurs in selling the
car. The shortfall plus expenses is due immediately, but the lender
may be willing to accept a payment plan.
With enough money at risk the lender is likely to
sue for a deficiency judgment against you for any shortfall on the
loan plus expenses if you can't meet their repayment terms. (Some
states don't allow the lender to sue for a deficiency judgment on
an auto loan.) A judgment will show on your credit report along
with the repossession.
Your credit report will reflect that the car was repossessed.
The credit reporting agencies differentiate between a voluntary
and involuntary repossession on their credit reports, but it won't
make much of a difference when you apply for new credit. The repossession
stays on your credit report for seven years.
Selling the car on your own may allow you to realize
a higher price for the car, but the lender has to be willing to
release title on the car for you to transfer ownership. That could
be a problem, so check with the lender before trying to sell it
yourself. While talking to the lender you should explain your situation
and ask if they have a solution other than voluntary repossession.
Sorry the news wasn't better. Good luck finding your
next job. Remember that bad credit doesn't last forever and that
you can and will rebuild your credit history.
-- Posted: Oct. 29, 2002