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Can I surrender my car if I can鈥檛 afford the loan?

There are ways to avoid the repo experience. Even if you can't afford your car loan, you can choose how to go forward. You can surrender your car to the bank, or work out a payment plan to avoid car repossession.

provides this look at how you can surrender your car to the bank instead of auto repossession鈥攁nd why you might want to.

Key Takeaways:

• Voluntary surrender of a car lets you avoid the usual auto repossession process.
• Instead of a surprise tow truck in the middle of the night, surrendering your car gives you more control of the process.
• Surrendering your car has negative credit consequences, especially if you still owe money on the car loan after your car is sold at auction.

What Is Voluntary Surrender of a Car?

鈥淰oluntary surrender鈥� of a vehicle is when you choose to hand over your car to the bank or lender. People sometimes choose to do this when they fall behind on and can鈥檛 afford to repay what they owe. If you鈥檙e going through serious financial hardship and can鈥檛 afford to keep paying for your auto loan, surrendering your car to the lender could be part of the solution. Surrendering your car is sometimes also called 鈥渧oluntary repossession,鈥� because unlike a typical car repo, you鈥檙e voluntarily choosing to let the lender take the car.

In some rare cases, lenders might refuse to accept your surrender of the car, or fail to pick up your repossessed car. This could be a sign that the lender doesn鈥檛 believe the car is worth fixing and selling at auction. If a lender refuses to let you surrender your car, consider talking to a bankruptcy lawyer about your options. Filing can sometimes let you keep your car, even if you were having trouble making auto loan payments.

When to Surrender Your Car

You should only think about surrendering your car to the lender if you鈥檝e fallen seriously behind on payments for your car loan. If you鈥檝e only missed one or two months of payments, you should contact the lender and ask for or try to work out a repayment plan. Some auto lenders will work with you and try to find a way for you to keep affording your car loan, instead of forcing the lender to go through the costly process of repossessing your vehicle.

But here are a few signs that it might be time to surrender your car:

• You鈥檙e already getting calls from your lender鈥檚 collections department.
• You鈥檝e already tried to negotiate with the lender and work out a payment plan.
• You don鈥檛 see a realistic way forward to successfully make your car payments.
• You don鈥檛 qualify for other types of debt relief.

If you decide to surrender your car, be aware that you might still be responsible for some of the unpaid loan balance. After any auto repossession, whether it鈥檚 done by a car repo team with a tow truck or a voluntary surrender, the lender will try to sell your car at a public auction. Lenders use these car auctions to try to get paid for the rest of the unpaid car loan. But often, repossessed cars sell for less than the remaining loan balance.

For example, if you have a $20,000 balance on your car loan and the lender sells the car for $10,000 at auction, that means you still owe $10,000. Lenders can send this unpaid debt to collections, or bring an against you, even after you surrender your car.

Surrendering Your Car: Pros and Cons

Deciding to surrender your car is a big choice and it鈥檚 often a last resort for people who can鈥檛 pay their auto loan. Here are a few possible benefits and drawbacks of surrendering your car as you consider what to do.

Surrendering your car: Drawbacks

• You won鈥檛 have the car anymore: You鈥檒l need to find other transportation, like a vehicle borrowed from relatives, public transit, or ride-sharing services. (But this is also true if your car gets repossessed.)
• You might still owe money: If your car doesn鈥檛 sell for enough to repay the balance that you owe, the lender might come after you for the remaining balance on your auto loan.
• Credit consequences: Just like a foreclosure on a home or a typical auto repossession where your car gets towed, surrendering your car is a serious negative event on your credit report.

Surrendering your car: Benefits

• Save money on fees: With voluntary surrender, you might be able to avoid paying some repossession fees. The lender doesn鈥檛 have to pay a repossession team to go get your car, because you鈥檙e bringing the car to them.
• Emotional well-being: Surrendering your car, instead of watching it get towed away by surprise in the middle of the night, could give you a better sense of relief and peace of mind. Voluntary surrender might feel like you have more control of the situation, and a more peaceful, orderly way to move on with your life.
• Could be better for your credit report than repossession: Voluntary surrender stays on your credit report for seven years, the same as any auto repo. But future lenders might look at a voluntary surrender as more favorable than a typical auto repossession. Surrendering your car shows lenders that you were proactive and you tried to take responsibility for the situation, even if you couldn鈥檛 repay the auto loan. Surrendering your car instead of letting it be repossessed could help make it easier for you to qualify for credit in the future.

Try talking to your lender first. If you want to keep the car, talk to a bankruptcy attorney to see what options you might have to keep the vehicle. But if you don鈥檛 need to keep the car, you鈥檙e prepared to deal with the credit score consequences, and you don鈥檛 want to file bankruptcy, voluntary surrender could be a better choice than going through the typical car repo process.

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