When financial strain makes it difficult to keep up with car payments, some borrowers consider voluntarily returning the vehicle to the lender. This process can seem like a more responsible or less damaging alternative to involuntary repossession. However, a voluntary repo will also affect your finances and credit in consequential ways.

What is voluntary repossession?

Voluntary repossession occurs when a borrower contacts their lender and arranges to return the vehicle, as they are no longer able to make payments. Unlike an involuntary repossession, where the lender sends a tow truck to retrieve the car without notice, a voluntary surrender gives you more control over the timing and process.

How a voluntary repo affects your credit

Even though the vehicle is returned willingly, voluntary repossession is still considered a derogatory mark on your credit report. It can lower your credit score by 50 to 150 points, depending on your existing credit history. Those with higher scores tend to experience the largest drops.

Repossession, voluntary or otherwise, will remain on your credit report for seven years. Having a blemish like this can affect your ability to secure new credit, rent housing, or qualify for favorable interest rates.

What happens with your current auto financing?

Returning the car does not excuse you from financial liability. Once a lender sells the vehicle — typically at auction — you’ll be held responsible for the difference between the sale price and what’s still owed. This gap is called a “deficiency balance.”

For example, if you owe $17,000 on the car and the lender sells it for $12,000, you still owe $5,000. On top of that, repossession-related fees like towing, storage, or auction fees may be added to your remaining balance. If you don’t pay this deficit, the lender can send your account to collections or pursue legal action, which could result in wage garnishment or a court judgment.

Other financial and practical consequences

A typical unforeseen consequence of a voluntary repossession is higher insurance rates the next time you seek coverage for a vehicle. Some insurers view any kind of repossession as a sign of financial risk, which can lead to higher premiums.

However, there is an upside to electing to go through a voluntary repossession: It may reduce some fees (such as towing and impound costs) and allow you to manage the logistics on your own terms. These advantages can make the process less emotionally taxing.

Alternatives to consider

Before turning in your vehicle, explore these less damaging options:

• Negotiate with your lender to adjust payment terms or seek deferment

• Refinance your auto through another lender (if your credit and income qualify)

• Sell the car privately to pay off the borrowed amount

• Seek help from a credit counselor or bankruptcy attorney for structured financial relief

If you’re unable to do any of the above, we do have some good news. Once your financial situation has stabilized, Credit Acceptance may be able to help you finance another car. We can and do work with those who have had a repossession in their past, voluntary or otherwise. So, just because you had to give up a vehicle once doesn’t mean you won’t be able to obtain another later.

Ready to start over after a voluntary repossession?

Getting pre-qualified with Credit Acceptance before visiting a dealership gives you a sense of what you can finance. We’ll give you an estimate of what amount we might qualify you for and a shortlist of dealers you can speak with about buying a vehicle. That way, you’ll have a bit of insight into what you can afford and who will work with you before you begin to shop.