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Can You Give a Car Back to the Bank?

Yes, you can give a car back to the bank. It is called a voluntary repossession. The key word is ”repossession”. Whether you give the car back or it has to be taken, it will read the same on your credit report and will lower your credit score accordingly.

How Bad Will The Damage Be?

Exactly how much a repossession will lower your credit score depends on how good your score was to begin with. Someone whose score was in the excellent range (720 or higher) may see their score drop by as much as 150 points. If your score already falls in the bad credit range( sub-600) you may only lose 25 points.

No matter your score before and after the repossession, returning the car is not the end of your troubles. Once the lender takes possession of the vehicle it will be sold at auction. In many cases the car does not sell for enough to satisfy the loan and collection fees. That will leave you owing the lender a deficiency balance. Frequently, this balance is immediately turned over to a collection agency. If you are unable to pay the deficiency balance within approximately 90 days (depending on the state you live in), you will find yourself on the wrong end of a court ordered wage garnishment. All court ordered garnishments damage your credit score above and beyond the initial repossession.

How Long Will The Damage Last?

The damage to your credit report from a voluntary repossession will last at least seven years from the time your account became delinquent with the original creditor. A court ordered wage garnishment for any deficiency balance will last for at least seven years from the date the judgment is ordered.

The damage can be minimized in two ways. The first is to file bankruptcy. A discharged bankruptcy will cover the original loan and eliminate the deficiency balance. After filing for bankruptcy, any wage garnishments must stop. While the garnishment may stop, in many states the court order will still appear on your credit report, though it will show a zero balance owed.

The other way to minimize the damage from a repossession is time. Even though it will appear on your credit report, the effects of a negative mark fade over time.

Can You Get Another Car Loan Afterwards?

Unfortunately, it will be tough to get another auto loan soon after you’ve given a car back to the bank. Some lenders won’t consider you for approval until at least two years have passed, and in many cases, surrendering your vehicle results in a deficiency balance. This is when you still owe a balance after the bank has sold the car at auction. Many lenders and banks will be hesitant to give you a new loan until you’ve paid off your old one, of course. You’ll definitely need to clean up your credit as much as possible, and then shop your loan among a variety of lenders to find one willing to fund your purchase. Go here for more on getting approved after a repossession. In this article, we discuss what lenders will be looking for and how to improve your odds of approval.