What Happens to Your Credit Score If You Turn in Your Car Back to the Bank?

Always pay your bills on time to maintain good credit.

An involuntary repossession occurs when the bank comes to pick up a car. When you turn your car into a bank, that's called a voluntary repossession. They both have the same negative impact on your credit score.

Effects

How you pay your debts accounts for 35 percent of your FICO credit score. A repossession means you did not pay your auto loan debt, and, once it appears on your credit report, it will lower your credit score. How much your score drops depends on the other items contained within your report.

Significance

A repossession remains on your credit report for seven years. If you try to finance another vehicle, lenders may not approve you with a repossession on your report. Subprime lenders -- those that cater to consumers with poor credit -- may approve you for an auto loan, but it may be at a very high interest rate so proceed with caution.

Warning

Just because you return a car to the bank does not relinquish you of the legal obligation to repay the debt. The lender will sell the car to recoup some of its loss. The lender will then come after you for the difference between what the car sells for and the amount of the outstanding loan. This is called deficiency. If you can't pay it, the lender can sue you to collect this amount and obtain a judgment against you.

References

• Federal Trade Commission: Vehicle Repossession
• Financial Web: The Effects Of Repossession On Your Credit Score
• MyFico: What's In Your Credit Score
• Bankrate: Voluntary Repossession Of A Leased Car

Resources

• Federal Trade Commission: Building A Better Credit Report
• MyFico: Improving Your FICO Score