Return Financed Car - Financial Power

Returning a financed car, also known as voluntary repossession, is a serious decision with significant financial and credit implications. While it might seem like a quick fix to alleviate financial burden, it’s crucial to understand the ramifications before proceeding.

When you return a financed vehicle, you’re essentially telling the lender you can no longer afford to make payments. The lender will then typically repossess the car and sell it, usually at auction. The proceeds from the sale are then applied to your outstanding loan balance. However, and this is critical, you are still responsible for the deficiency balance, which is the difference between the amount you owed on the loan and the price the car sold for at auction. This deficiency balance will also likely include repossession and sale-related fees, further increasing the amount you owe.

For example, if you owe $15,000 on your car loan and the lender sells the car for $10,000, you would still owe $5,000, plus any fees associated with the repossession and sale. This outstanding debt is legally enforceable, and the lender can pursue collection efforts, including lawsuits and wage garnishment, to recover the funds.

Furthermore, a voluntary repossession will significantly damage your credit score. It will be reported on your credit report as a repossession, which is viewed very negatively by lenders. This can make it difficult to obtain future loans, including car loans, mortgages, and even credit cards. You might also face higher interest rates on any credit you are able to obtain.

Before considering returning a financed car, explore all other possible options. Contact your lender to discuss potential solutions, such as a loan modification, refinancing, or a temporary payment plan. Explain your financial hardship and be transparent about your situation. Lenders might be willing to work with you to avoid the hassle and expense of repossession.

Another option is to try selling the car yourself. Even if you owe more than the car is worth (being “upside down” on the loan), selling it yourself could potentially get you a higher price than the lender would at auction, thus reducing the deficiency balance. Be sure to coordinate the sale with your lender to ensure a smooth transfer of ownership and payoff of the loan.

Finally, consider consulting with a financial advisor or credit counselor. They can provide personalized advice and help you develop a budget and debt management plan. They can also assess your financial situation and determine if bankruptcy is a viable option, although bankruptcy also carries its own set of consequences.

In conclusion, returning a financed car should be considered a last resort. Understand the financial and credit implications, explore alternative solutions, and seek professional advice before making a decision that can significantly impact your financial future.