Repo vs Voluntary Repo

Voluntary Repo vs Repossession: What Really Happens to Your Credit and Options to Avoid It

Host Meredith Reynolds of Women Buying Cars tells the truth about a voluntary car repossession or surrender. 

00:52 Show Introduction
01:37 Dealership Horror Story
04:11 Repo vs Surrender
04:23 How Repos Work
05:58 Voluntary Repo Reality
06:48 Credit Report Impact
09:20 Why Banks Lose Money
12:32 Score Drop Fallout
15:07 Avoiding Repossession
15:45 Sell or Refinance Options
17:55 Rebuild Your Credit
19:13 Final Recap and Outro

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Transcript

0:01

You have had a really bad month. You're in the middle of a divorce. You've spent some time in the hospital and you've just lost your job. Frankly, your finances are in the toilet. That $500 monthly payment for your car is no longer within reach. Fortunately, you have a sister who looks out for you. She says you could drive an extra car she has for a while and that the best thing to do is just take the car back to the dealership and tell them you can no longer pay for it. This is what's called a voluntary surrender or voluntary repo. Is that the best advice? I will let you know all about it today on women buying cars. You are listening to women buying cars, and I'm your host Meredith Reynolds. I'm a former teacher turned used car dealer and I'm here to teach and empower you to walk into a car dealership with confidence and walk out with the car that's right for you. Thanks for joining me. I am Meredith Reynolds, host of women buying cars and owner of Reynolds Automotive in the Kansas City area. We have a used car dealership and we focus heavily on customer service. And making the buying process easy and stress free for our customers. No high pressure, no tricks, no games. I recently met a woman at a networking event and we were talking about what we each do for a living, and she started telling me this horror story. About a time she was test driving a car at a big franchise dealership. the huge ones in your town or city., She was going for a test drive, but had to leave her keys at the dealership as collateral so that she doesn't just drive off with a car and never come back, which seems reasonable. When she came back, she knew the car was not for her, and she let the salesperson know, this isn't for me. They started. Saying let's look at another car. And she said, no, I really don't want to. I'm just ready to go. She still hasn't gotten her keys back. She asked for her keys and the salesperson starts just not answering that question and instead asking her more questions. What do you think would be best for you? And have you considered this and have you, and. And would not address the fact that he had not given her keys back. She asked for her keys a second time. At that point, he said let me get, let me introduce you to my manager. When the manager started walking over, she said she really had to start making this scene because she had asked for her keys three times and had not received them. Finally, they gave her keys back and she was able to get out of there, but she's scarred for test driving cars. She does not do it anymore. She lets her husband handle the whole thing and she just stays out of it. I don't blame her, frankly. That sounds really scary and intimidating that. You are asking for your keys three times and someone is not giving them to you. They're trying their best tactics to keep you there and try to convince you to drive another car or give another car a chance or, and make a sale. And I just think that's really gross. I asked her, do you think your husband would've had to ask three times to get his car keys back? She said, I don't think so. And frankly, I don't think so either. I think that is a tactic that is used on certain types of individuals, women being one of them. If A man had said, I'm ready to go. Gimme my keys. I think they would've given him his keys. So I was just really disgusted. I'd never heard a story like that and it just really bothered me. If you have a story to share, send me a text and I would love to hear it and possibly mention it on the next show. Today we're talking about getting your car repoed or repossessed versus a voluntary repo. Also call a voluntary surrender or just a surrender. Let's break that down and see what we're talking about. So we've probably all heard the term repo, right? If you don't pay for your car, eventually the lender's going to show up in the middle of the night with a tow truck and take it because they have every right to do that. While you're financing a car, the lender is truly who owns it until the loan is paid, and they have the right to take the car if you don't pay for it. Just like a lender can take your home if you don't pay for it during your mortgage. By the time that happens, you've been called many times. You've received many notices about the fact that you need to pay for your car. It will come as no surprise, a voluntary repo or surrender. Is basically when someone realizes they can't pay for the car and they call up whoever it is that loaned them the money and tell them, I can't pay for this car anymore and I'd like to give it back. You're going to just go to the dealership and you're gonna leave your car there and they will take the car back. If you have bought it from someone like me, we don't. Finance. The cars ourselves. We're a small dealership, and so we use lenders, and so you would have to call one of those lenders and tell them that you no longer want the car, and I don't know exactly where you take the car, but at some point someone's gonna come and get it from you. You'll probably know when it won't come as a surprise. You'll have time to clean out your car and do what you need to do before that person comes and takes it. So is one better than the other? The voluntary surrender is going to be less stressful. And less surprising, and you'll have time to get your things out. So those are good things. You also may not owe as many fees because in a repo, they're going to bill you for that tow charge and possibly some other fees. You may not have that happen in a voluntary repo situation. We recently had a woman come to our dealership. She had bought a car from us a year and a half prior and she said, I wanna turn this car in. Now we don't, like I said, we don't fund them ourselves, so we had no right to take the car. It doesn't involve us at all. And we told her she'll have to call the credit union she has a loan with and tell them. The reason I'm talking about this today is because sometimes I have people call up and say, Hey, will you work with somebody who has, challenged credit? And we say, yes, we have a lender or two who would consider you for a loan. Have you ever had your car repossessed? And a lot of times people will say I had a voluntary repo. It doesn't matter. It's a repo on your credit report that is a repo, and if it's been less than three years, I probably can't help you at all. After three years, certain lenders will consider loaning to someone who's had a repo with a very high interest rate. Others won't do it at all. A lot of people think that this voluntary repo situation is not looked at the same way as a repossession on your credit report. It looks the same. It will show as a repossession whether you initiated it. Or the lender initiated it. It all looks the same. It will tank your credit and it will stay on your report for seven years. Both of these situations are defaults. You borrowed money and then you did not pay it back. And to a future lender, that's what they see. A lender loans money to people they think will pay them back. They make that decision based on looking through a credit report, not just looking at the overall score, though that certainly matters, but also what is on the report? How many times was this person late paying a bill? Have they ever successfully paid off a car? Have they ever successfully paid off any loan? Are they maxed out on their credit? Cards if you're trying to get a car loan, you have a separate score that's called your auto score, and it focuses solely on whether you have taken out a loan on a car, paid it back, and paid every month on time. If someone sees that you have a repossession. Regardless of how voluntary it was to them, it looks like you may not pay them back, and That is very much a detriment. Okay? So think about it. If you took out a $20,000 loan, your payment was $400 a month. And you made payments for 10 months. Let's make the math easy for us. $400 times 10 months is $4,000. You have paid $4,000 toward the cost of the car and the interest. Now you wanna turn it back in? The average American drives a thousand to 1200 miles per month. Let's say you drove 1200 miles per month on average. So you've put 12,000 miles on this car in 10 months that has brought the value of the car down. Not only that you were maybe rough on the car, maybe you got into an accident that brings the value of the car down. So now the bank is getting a car that is 10 months older, has 12,000 more miles and an accident. Okay? The car is now worth less than what you owe on it. That's not a good situation for the bank. They're gonna take that car, they're gonna turn around and sell it, and they're not gonna get anywhere near the 20,000 that you originally paid for the car. It is not in their best interest. I Even though you voluntarily turned it in, you defaulted on the loan and you put the bank in a situation they don't ever wanna be in, which is losing money. And here's the other part of that. Because the car's worth less than you paid for it and less than what the bank's gonna get when they sell it. Let's say they go to sell it and, at auction they're selling it wholesale. So they're not getting retail value for that car because they're gonna sell it at an auction to to another dealer. So let's say they get 15,000 for that car. The difference in what you have paid toward the principal, because that $4,000 you paid, a lot of that went to interest. Let just make it easy. Let's just say half of it went to interest. So you actually only paid down the loan 2000. So you paid the loan down to $18,000. And honestly, I think that's generous, but we're just for ease of math. Let's do that. They're only gonna get $15,000 at auction for that car. So what about that extra $3,000 difference? They're gonna charge you for that. Because they're not gonna eat that $3,000. So you no longer have a car, your credit is tanked. The repo will be on your credit report for seven years, and you still owe $3,000 if you can't pay that $3,000. And I'm gonna guess in most situations people don't. they're gonna send you to collections for that $3,000. So you're not in collections for the whole car, but you are for that difference. the loss to the bank. And if you can't pay the $3,000 and you ignore the collection on that, your credit score nose dives even more. None of this is good. Okay. So how much will your credit score drop? I already told you it's the same, whether it's voluntary or involuntary. You're looking at least a hundred point drop. Yeah, probably more 150, maybe even more, because it depends. If you made every payment for three years, never was laid on a single thing, the rest of your credit score is really strong. Your score may drop less than someone who was late on every payment. Laid on other payments throughout their credit report and then the car was taken. So it is dependent on you, but if you're looking at 150 point drop, that is something that could really mess up your future if you're at a 700. And you're suddenly at a five 50 and maybe they send you to collections for that extra 3000, and maybe now you're down to 500. That is massive and that takes so long to build back up. Now we have lenders who will consider giving a loan to someone after a repo. If it's been about two to three years, they might lend them money. If they show that they've been paying their other bills on time, so even though it's on your report for seven years, you might get the chance to get another loan in a couple of years if you're paying everything else on time. However, your interest rate is going to be very high because you are high risk. So you might be looking at a 28% interest rate, which is just horrible. It may be your only option though, if you wanna buy a house. The mortgage lender is gonna be looking through your credit report, and again, if you haven't paid for a car, they're gonna wonder if you're gonna pay your mortgage. So it could be very difficult, if not impossible to buy a home. People who may consider loaning you money for a car would be a buy here, pay here lot, because they're not a bank and they make their own rules and they make their own decisions. They also set their own interest rates, and so you could be getting into a situation where you are. Paying through the nose, maybe even paying more in interest over the course of 5, 6, 7 years than for the car itself. And that's just really sickening. So how can you avoid all this? Sometimes our financial situation gets out of control and it's beyond our control. Like the example I gave at the beginning, a divorce hospital bills, you've been replaced by ai. What can you do if you can no longer afford your car payment? The most important thing to do is to be proactive. Do not start missing payments and just sit around and wait to see what happens. Before you start missing payments, you need to consider one of these options. Number one is to sell the car. If you have good credit, you could potentially downsize or downgrade your car. And we have seen this happen. Someone came in with an absolutely gorgeous, very expensive luxury car. Traded it into us and drove off with a very basic compact car. It was a sad day for her, but she had to do it to stay above water trading that car for a much cheaper car could potentially save you from getting a repossession and that is huge for now and for the future. I if you owe more than the car is worth. Then that is not a good situation. However, you could possibly still trade it in on a cheaper car. If you have good credit. The lenders we use can will finance them to up to 120% of the new cars price. So if you're trying to get a $10,000 car, the banks we work with would fund you up to a. $12,000 or 120%. If you have good credit and are in good standing, that means you can roll over $2,000 from your old loan into this new loan. Okay? The next thing you can consider is refinancing, so talk to the lender. If you've been making your payments very good for at least a year, they might be able to refinance at a lower interest rate or a longer loan. I don't like long loans because you end up paying a lot in interest, but if that's what you have to do to keep from a repossession, then it's worth it. So you have to talk to them upfront about refinancing. Maybe there's some other payment options. Yeah. The important thing to do is open a line of communication with the lender and let them know exactly what's going on and see if there are any options for you. If this has been unavoidable and you have tanked your credit, you have to immediately start doing everything you can to rebuild it. Because it's really important for your future and for your future finances that you rebuild your credit. It's going to take years to rebuild. The number one thing to do is to pay every bill you get on time, every time, every bill, your cell phone, your water bill, everything. Pay it on time, every time. Set up automatic payments so you don't have to worry about it. The other thing that's a lot of people don't realize is that you shouldn't be maxing out your credit cards. You wanna keep the amount on your credit cards at 30% of the total allowed value or less. If you have a $5,000 credit limit, 30% is 1500, you should not be carrying a balance more than 1500. I don't want you to carry a balance at all. I would love for you to get your credit card bill every month, pay it off in full, because that's also very good for your credit and not carry a balance. But if you have to carry a balance, keep it at 30% of the allowed limit. You do not. Need to be maxing out your credit cards. Just because they give you the credit doesn't mean you need to be using all the credit. So to recap on your credit report, voluntary repo, it's all the same. There is no benefit on paper to doing a voluntary repo. The only benefit to you is that you have time to prepare, get your stuff out of the car, and not be embarrassed when someone shows up at your work and hauls off your car in the middle of the day with all your stuff still inside. That's the only benefit. It is gonna stay on your credit report for seven years, and it's gonna be very hard to get a loan after that. And when you do get a loan, your interest rate is gonna be extremely high because your credit score is extremely low. Do everything you can before you miss a payment. To avoid all of this, sell your car downgrade. Try to refinance, talk to the lender about some other kind of payment option. Do everything you can proactively to get yourself out of this car or out of this interest rate and payment and into something that you can afford. If your credit does tank, it's gonna take you years to build it up, but it can be done. You just have to pay every bill on time, every time, and not max out all your credit cards. Thanks so much for listening. If you know someone who needs this episode, please share a little tough love with them and send it over. Come see me at Reynolds Automotive if you're in Kansas City. I look forward to helping you. Thanks so much for listening and happy driving.