If I voluntarily surrender my vehicle and that i pay off the settlement balance from the difference between what they sold it for and just what I still owe, does it still impact my credit score?
You may be able to get out of your vehicle loan without hurting your credit, as long as your debt is ultimately paid as agreed. This means getting creative with options that do not require asking the lender in the future get your vehicle in exchange for eliminating the debt.
For starters, you will want to determine how much equity you have in your vehicle. To calculate equity, subtract the amount you owe in your auto loan from your vehicle's estimated value. Should you owe a lot more than the vehicle may be worth, you've negative equity that will have to be resolved.
Will Car Loan Debt Settlement Affect My Credit Score?
You mentioned paying a settlement balance instead of the full balance due in your loan. When a lender offers a settlement, they're agreeing to take a loss on the remaining debt in order to close out the account. While paying a settled debt is better than defaulting, a settled account continues to be considered negative since it means you did not spend the money for lender the entire amount you originally decided to.
Settled accounts stick to a credit history for up to seven years. If you are current on your loan however settle the debt rather than pay in full, the seven-year period will begin in the date of settlement, so you'll want to give this option careful consideration. A settlement is the best course of action. If you've exhausted all other options, most future lenders will view settling your debt as much better than not paying the remaining balance whatsoever.
Will a Voluntary Surrender Affect My Credit rating?
Voluntarily surrendering your automobile will have a substantially negative effect on your credit scores since it means that you did not match the original loan agreement. When you voluntarily surrender your vehicle, the lender will sell the vehicle to recover as much of the money owed as you possibly can. If the car comes for under the amount you owe on the loan, you will still be responsible for make payment on remaining amount—the deficiency balance.
Although still negative, voluntary surrender may be slightly less damaging to your credit history than repossession since it indicates that you were prepared to use your lender to resolve your circumstances.
What to Do if you cannot Make Your Car Payments
If you're can not make payments in your car loan and want to avoid harming your credit rating having a voluntary surrender or repossession, you've options:
- Sell the vehicle. In case your car may be worth as much as or close to the balance on your account, selling it could allow you to remove the loan without harming your credit. Even if the amount you market it for doesn't cover the full quantity of the loan, you may be in a position to refinance the rest of the balance, making your instalments smaller plus much more manageable. Financing that shows “paid in full” is much better for credit ratings than a single that was closed following a voluntary surrender or repossession.
- Allow someone else to take over payments. In case your lender allows, you might be in a position to transfer the loan to another individual that will take ownership from the vehicle and assume the borrowed funds payments. In most cases, the brand new owner will need to meet the lender's requirements to qualify for the loan. Keep in mind that it's always best to contact your lender to go over your choices before falling behind on payments with the expectation that you could simply transfer the borrowed funds.
Alternatively, it might be tempting to allow another person to make payments for you in exchange for utilisation of the vehicle without transferring the borrowed funds, however, you should exercise caution. So long as the borrowed funds is within your company name, any missed payments are the responsibility and will also be reported for your credit rating, even if you are not the main one using the vehicle.
- Refinance the borrowed funds. If your current interest rate is high as well as your credit is nice, you might be in a position to lower your payments enough to maintain your car by refinancing the loan in a lower rate of interest. When you apply for and open a new account, it is possible that you will visit a slight dip inside your credit ratings, but it is likely this is temporary. Once you start making on-time payments around the new loan, you should see your scores rebound.
If you are attempting to rebuild your credit following a voluntary surrender, the most crucial steps you can take to improve your scores are to make all future payments promptly and your charge card balances to a minimum. You can also try increasing your FICO® Score☉ right away with the addition of your positive utility, cellphone and streaming service payments to your Experian credit history with Experian Boost™† .
Thanks for asking,
Jennifer White, Consumer Education Specialist