Voluntary surrender v/s Repossession: Which to choose?

By | August 9, 2019

Are you facing trouble with your car loan EMIs? We’re here to help you make an informed choice when it comes to voluntary surrender or repossession of the car.

Are you afraid of defaulting your Car Loan payments due to a financial crisis? Wondering what to do if you’re unable to make your Car Loan payments on time? Here’s everything you should know.

If a customer repeatedly fails to make the payments of the Car Loan EMI to the lender as per the agreed loan terms, it qualifies as a loan default. If the customer continues to miss a prescribed number of payments deadlines, it might be time to consider repossession or voluntary surrender.

Additional Reading: Your Car Loan EMI Calculator Guide


If you’re having trouble making loan payments, it’s wise for you to talk to your lender. Banks, in general, have options to help you under circumstances when you can’t repay your loan.

In case the loan can’t be repaid, it might come down to the repossession of the car. What is repossession you might ask? In the event that the borrower is unlikely to be able to make the loan payments at all, the lender is likely to eventually seize the car and send it to an auction for sale.

In case that happens, you’ll have to pay the difference between the amount that the car sold for and the remainder of the loan balance. In case the original borrower is unable to pay the remaining balance after the sale of the car, the guarantor is responsible for the loan and will have to repay the outstanding amount.

Before such a scenario occurs, we suggest you communicate with their lender as it can make a huge difference between keeping the car and having it repossessed. All the best!

Additional Reading: Car Loan Default – All You Need To Know

Voluntary surrender

Voluntarily surrendering your vehicle may be slightly better than having it repossessed. In this case, if you are unable to make the loan payments, you can hand over the vehicle to the lender and it will be sold to service as much of the outstanding debt as possible. Voluntarily returning the vehicle also shows that you’re handling your debt responsibly.

The proceeds from the sale of the car will go towards the balance you still owe on the loan. If there is still a huge balance amount remaining after the sale and you aren’t able to pay it off, the lender might hand it over to a collection agency. Due to this, you might see a collection account being added to your credit history.

Additional Reading: How To Transfer A Car Loan To Another Person

In case the balance amount after the sale of the car is minimal, it is the discretion of the lender to forgo the unpaid balance. In this case, the forgone amount will likely be counted as additional income, which means you will have to pay tax on it.

In the event that you voluntarily surrender the vehicle, your credit report will still indicate that. It will be listed as a voluntary surrender and any remaining balance will continue to be reported.

Additional Reading: Can I Get A Car Loan For A Second Hand Car?

Though both repossession and voluntary surrender are negative for your Credit Score, voluntary surrender might hurt your Credit Score slightly less than repossession.

If you’re interested in comparing and applying for a Car Loan, you’ve arrived at the right place. We’ve also got a bunch of financial products such as Credit Cards, Personal Loans, and Home Loans for you to choose from!

All information including news articles and blogs published on this website are strictly for general information purpose only. BankBazaar does not provide any warranty about the authenticity and accuracy of such information. BankBazaar will not be held responsible for any loss and/or damage that arises or is incurred by use of such information. Rates and offers as may be applicable at the time of applying for a product may vary from that mentioned above. Please visit www.bankbazaar.com for the latest rates/offers.

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