Q:

What is voluntary repossession?

A:

Quick Answer

Voluntary repossession is a situation in which a debtor, having defaulted on a car loan, voluntarily surrenders the vehicle to the seller, according to FinancialWeb. Although it is a negative option, it does have certain advantages over repossession.

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Full Answer

When a consumer takes out a car loan, the car itself is typically considered collateral for the debt, as noted on FinancialWeb. If the buyer does not make the loan payments, the seller or lender seizes the car in order to recover what is owed. In this event, known as repossession, the lender hires an agent to physically take possession of the car at a time of their choosing. The defaulter is responsible for any costs incurred in this process, including storage of the vehicle afterward.

Through voluntary repossession, the defaulter avoids this extra expense as well as the stress of an embarrassing scene outside of a home or workplace. However, this still counts as a repossession and impacts the defaulterĀ“s credit score in a negative way, according to Synonym.com.

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