What Happens To Your Credit When Your Car Is Repossessed – When buying a new car, it’s tempting to go beyond the base model and splurge on a few extras. This could include a DVD player, a navigation system, or an automatic everything. However, with the average new car costing just over $40,000, it’s important to make sure you can afford the vehicle.
You may be wondering what options you may have to avoid foreclosure due to an unexpected layoff, job loss, or other circumstances that affect your ability to make car payments. Specifically, you may have questions such as: Can I return a car I’ve financed? The answer depends.
What Happens To Your Credit When Your Car Is Repossessed
If you have taken out a car loan to finance the purchase of a new or used vehicle, you have several options to surrender the vehicle and terminate the loan agreement or make your loan payments more manageable.
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There are many reasons why you may need to return your financed car. Returning your vehicle may make sense in one of the following scenarios:
Trading in your car for a cheaper one is something you should consider if you still need a car but can’t afford to buy the one you have. You still have to pay off your car loan. However, if the car is cheaper, the new payment may fit your budget better than the old one.
Lemon laws vary from state to state, so be aware of the time limits that apply if you want to return your vehicle because it’s a lemon.
If you can’t pay, you may have to return the vehicle. However, before returning it, contact your dealer to see how we can help. For example, if your financial problems are temporary, the dealer may allow you to skip a payment or two and add them to the end of the loan period.
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If you financed the purchase of the car through a dealership, you may be able to get it back. However, this will depend on the merchant’s return policy and rules. Like the Lemon Law, there may be time limits on how long you have to return the financed vehicle to the dealer.
In some cases, dealers may accept the return of your financed vehicle if necessary to avoid repossession. The important thing to remember here is that vehicles depreciate quickly. After just a few months of ownership, you could owe more on your car than it’s currently worth. This may mean getting out of your vehicle and putting down money to get the loan.
For example, if your car’s depreciation is $20,000 and you still owe $25,000, you’ll still have to pay the $5,000 difference even if the dealer agrees to take it back. So this is something to keep in mind when deciding whether or not returning your car is the best option.
If the dealership refuses to cooperate, consider filing a complaint with the Better Business Bureau, your state attorney general’s office, the Federal Trade Commission, and/or the Consumer Financial Protection Bureau.
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If you can no longer afford your car, you can ask the dealer to agree to a voluntary repossess. In this scenario, you tell the lender that you can no longer make the payments and ask for the car back. You may need to hand over the keys and some cash to cover the loan amount.
Voluntary repossession allows you to return the car you financed without having to go through the entire repossession process. While a voluntary repo can still be reported to the credit bureaus, it will reduce some of the damage to your credit score.
Ask if there are any fines or fees you may have to pay as a result of the voluntary repossession and how to report it to the credit bureaus.
If your car has depreciated so much that the dealer won’t let you return it, or the reason you’re returning it isn’t covered by the return policy, you might want to try another method.
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If affordability is an issue for you with your monthly payments, you may want to consider refinancing your car loan. Qualifying for a new loan with a lower interest rate can save you money and potentially lower your monthly payment.
However, it is important to consider the new term of the loan. Refinancing to a longer loan term can lower your monthly payments. However, you may end up paying more in interest than if you chose a shorter car loan. Check out the best car loans before you go down that road.
Another option you could consider instead of returning the car is to sell it and use the proceeds to pay off the loan. You won’t have a vehicle, but you won’t have car loan debt hanging over your head either.
If your car is currently worth less than what you owe, you may need to take out a personal loan to cover the difference if you don’t have the money to cover the difference with your lender. Financing the difference with a credit card is usually a bad idea unless the card offers a very low interest rate.
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You can finally find someone to pay the loan along with the car. You can find potential buyers by advertising on marketplaces like Craigslist and eBay Motors.
The person who buys the vehicle takes ownership of the vehicle and is also responsible for the loan. However, the agency may require you to apply for a loan and perform a credit check before accepting the loan. If you do not have solid credit, you may not be able to choose this option.
Read your loan agreement carefully to see if the lender will allow someone else to make the loan payments.
If you rent a car, the situation is slightly different. Of course you can’t sell it. You can return the vehicle to the dealer, but you may be subject to high early termination fees as long as it is not before the end of the lease. Plus, you’ll still have to pay the rest of the lease, and to make matters worse, you’ll also lose the down payment you originally paid.
Car Repossession: How It Impacts Your Credit
But drivers who want to terminate their contracts before the hour can laugh. In general, you have several options to avoid harsh termination penalties. One of the often overlooked and least expensive options is to transfer your lease to someone else.
It works like this. Let’s say you have two years left on a three-year lease. The person buying your lease agrees to pay the remaining monthly payments. Some finance companies do not allow these transfers, but many do. The trick is to find someone who is interested in taking the reins from you.
Fortunately, several websites have made this task much easier. Sites like Swapalease and LeaseTrader offer listings to help connect existing tenants with potential tenant buyers.
These deals can also be beneficial for those who rent. First of all, you don’t have to pay the large down payment that the original lessee already paid for the vehicle. Also, some people only need a car for a relatively short period of time (for example, one or two years). Leasing from someone else is an ideal way to get a relatively new car for a limited period of time.
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Remember that having someone else accept your rental is usually not free. Using a merchant website to facilitate a transaction typically costs between $100 and $350. However, this is only a fraction of the price that most rental companies charge if you decide to return the vehicle early. Some finance companies will charge a lease transfer fee, usually around $300, when they arrange an exchange.
To get more bang for your buck, you might consider offering an upfront incentive, such as $500, to reduce the amount the mover has to pay.
Before you decide to sign up with a rental agreement website, it’s important to do your due diligence on both the website and the company you’re signing a rental agreement with. Here’s what you want to know:
Depending on the severity of your financial crisis, there are different ways to unload your rental car. They include:
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Sometimes manufacturers allow you to trade in your current car for a different model. This option is a mixed bag. In most cases, the early termination fee will still be due, although it will be added to your new payment amount. This means that the pain spreads over a long period of time.
Often, rental companies allow you to purchase the car before the end of the rental period. For example, this is a course you might want to take if you’ve exceeded the mileage allowance on your lease and want to keep your car for the long term. The company should have a payment schedule showing how much you will have to pay to make the car yours.
Another alternative, if allowed, is to buy the car on a sublease and sell it to someone else. Please note: the trade-in amount may be higher than the market value of your vehicle, which may result in you losing your deal. However, if selling the car is cheaper than scrapping it prematurely,
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