- 1 Will Giving Back a Car Before Payment Becomes Delinquent Hurt My Credit Score?
- 2 Dealers hold the cards when they finance your car
- 3 Can a Car Dealership Take a Car Back If Your Financing Is Not Approved?
- 4 When a car is repossessed, can you get back your belongings that were left in the vehicle? Yes. – Alabama Consumer Finance Attorney Judson E Crump 30
Will Giving Back a Car Before Payment Becomes Delinquent Hurt My Credit Score?
Returning your car to the lender is better than waiting for it to get repossessed, but not by much. Both voluntary surrender and repossession can result in a major hit to your credit and additional fees. If you're struggling to make your payments, you should exhaust other options before you hand over your car.
According to credit reporting bureau Experian, if you give your car back to the lender, your credit report will list "voluntary surrender" next to the account along with any balance you still owe, because the value of your car wasn't enough to cover your loan. Your credit score will also drop significantly, even if you're not delinquent when you surrender. Just how much it will plunge depends on your individual credit situation. The voluntary surrender will stay on your report for seven years.
Your lender will sell the car you voluntarily surrender and deduct the sale price from what you still owed when you gave it up. If the car sells for less than you owe, your lender will charge you the balance. If you don't pay it, the lender could sue you, get a judgment in court and garnish your wages or take money out of your bank account. If a judgment is filed against you, this will also reduce your credit score.
Because repossession and going to court are expensive for your lender, you might be able to negotiate an agreement so you can keep your car and your good credit. Fox Business suggests developing a budget that includes a car payment you can afford and asking if the lender will refinance. Other options include selling the car yourself to pay off the lender, finding someone to take over your payments and trading in your car at the dealership to buy a more economical model.
Voluntary surrender should be your final option, but it can save you money over repossession. It's also better for your credit score. According to legal website Nolo, your lender can charge you for repossession fees if it takes your car. If you surrender voluntarily, you might be able to avoid these fees. When it comes to your credit report, a voluntary surrender makes you a high risk for future loans, but the fact that you gave the vehicle back when you realized you were in over your head speaks to your responsibility, the Experian team states. If you're able to surrender the car before your payment becomes delinquent, you'll only take one hit to your credit report -- for returning the vehicle -- instead of two -- for returning the vehicle and missing a payment.
Dealers hold the cards when they finance your car
You’ve finished the bad coffee.
You’ve looked at everything remotely interesting in a car dealer’s office.
And now the wait is over. The finance manager returns and is ready to tell you the interest rate on the auto loan for your new car.
Take it and you’ll be paying too much.
Here’s what was happening while you sipped coffee.
Calling the lenders
The finance manager faxed or e-mailed your credit information to more than a dozen different lenders to find out which ones would be willing to lend to someone with your credit rating on this particular day and at what rate. He chose a lender by looking at how big a cut he could make on the deal.
“They’re going to choose whoever gives them the largest commission,” says Art Spinella, vice president of CNW Marketing/Research in Bandon, Ore.
A dealer’s cut usually means bumping up the interest rate on the loan. Will the best deal for a dealer be the best deal for a consumer?
Dealers have been acting as middlemen in the auto financing business for decades.
“It’s almost as old as the industry itself,” says Mike Morrissey, a spokesman for the National Automobile Dealers Association.
Every dealer has relationships with dozens of different lenders including banks, credit unions and independent finance companies, as well as the financing arms of major manufacturers such as Ford Credit and General Motors Acceptance Corporation.
Some split the pot with the lender
In exchange for bringing customers to lenders, dealers dip into some of the profit by boosting interest rates. Some lenders set limits as to how much a dealer can boost the price of a loan. Others do not. Some lenders get a cut of the increased interest rates. Others do not.
“Some lenders will have a maximum. So you’re only allowed to bump up the interest by two points,” says Mark Eskeldson, an auto expert and author of
CarInfo.com, a consumer information and advocacy Web site.
“Some lenders have no limits. So a dealer could bump it up six to eight points.”
And that can mean some serious profits for dealers and some serious losses for consumers.
“I’ve seen dealers who have $2,000 per unit profits in financing,” Spinella says. “It’s outrageous.”
Credit union deals different
Keep in mind that every arrangement between a lender and a dealer is a little different. For example, a credit union may pay the dealer a $150 to $200 fee for every loan it receives. The interest rates on the loans stay put. So whether a person applies directly from a credit union or through the dealer, the rate will remain the same.
You won’t see too many rate markups on discount financing deals from auto manufacturers either. If you qualify for that .9 percent financing offer, there’s no way a dealer can bump it up. The dealer’s cut is limited to a fee paid by the manufacturer’s financing company.
Remember, only people with excellent credit qualify for super-low financing deals.
“If you don’t qualify at .9, then you’re thrown into the other pool and all bets are off,” says George E. Hoffer, an economics professor at Virginia Commonwealth University. “It’s buyer beware.”
Markups on auto loans can happen to anybody who finances a car through the dealership.
“Good or bad credit doesn’t matter,” Eskeldson says. “Everyone needs to watch out.”
Same credit rating, different deals
People with the exact same credit rating could walk away with drastically different financing deals.
It could be because the dealer is making a nice profit on a customer’s trade-in and on the transaction price of the vehicle and is willing to give a little on the rate on the loan. It could be the dealer is especially keen to sell the vehicle being financed.
It could be because the consumer took the time to shop around for financing before setting foot in a car dealership.
“If a person comes in knowing what their financing alternatives are, the dealer has much less leeway,” Hoffer says.
Shopping around for auto financing is easy to do. Check out the rates available from local banks and credit unions.
Bankrate.com lists national averages for new car loans as well as rates available in local markets around the country.
E-Loan are among the lenders offering online loans. The rates are in the 7 to 8 percent range for people with good credit. People with less than stellar credit may receive rates ranging from 13 to 20 percent.
“Online lenders are truly bargains,” Eskeldson says. “They’re cheap and they do less-than-perfect credit.”
Get financing first
Arrive at the dealer with approved financing in hand. That way when a dealer tries to talk you into a marked-up interest rate on an auto loan you’ll have the power to say “no.”
“If you’re smart and if you do your homework. They won’t do it to you,” Eskeldson says. “The only way car buyers can protect themselves is homework, homework, homework.”
It’s also a good idea to order a copy of your credit report and correct any errors a few months before shopping for a car. This step-by-step guide from
Bankrate.com will help you do just that.
“Two months before you buy a car, get a copy of your credit report and fix anything that’s fixable,” Eskeldson says. “It will save you money.”
Can a Car Dealership Take a Car Back If Your Financing Is Not Approved?
by Leigh Thompson
Some car dealerships let loan applicants take possession of the car while they find financing.
Many car dealerships operate with the best of intentions. They make broad claims such as a high percentage of guaranteed approval. With this guarantee they let you take possession of the vehicle while they get you financing to purchase the vehicle. The downside to participating in this type of arrangement is if you find yourself in the small percentage of people for whom they cannot get financing approved. When you cannot get dealer financing, you must find another way to keep the car or give it back.
Shop Around to Your Local Banks
Fill out applications with other financing companies such as your local credit union or your personal bank. They may take your current business and financial matters under consideration when granting your loan. The best part of shopping around is that filling out multiple auto loan applications within a 30-day period does not adversely affect your credit as normal credit inquiries do.
You may also check with some online financing companies that specialize in bad or limited credit histories. You'll suffer with a higher interest rate if you go the subprime route but you'll get to keep the vehicle in your possession. Common subprime loan issuers include Capital One, HSBC and Ally Financial. These banks have a reputation for extending lines of credit to consumers who may suffer from poor or limited credit history.
Change the Terms of Your Application
Ask the dealer why you were denied. Determine if there is a way to fix the problem. It may be that you are asking for too much money. Increase the amount of money for your down payment to lower the total loan amount. You may also need to buy a less expensive vehicle. Another option is to find a co-signer. Co-signers use their income and good credit history to guarantee the loan for you. Many times credit is denied applicants who do not have established lines of credit. If this is your denial reason, a co-signer may help secure the loan for you. Bring your co-signer to the dealership to sign the necessary paperwork.
The car dealership has every right to take a car back when financing is not available for the vehicle. The vehicle is not a gift to you, after all. You need to find a way to finance the vehicle or return it to the dealership. Do not be embarrassed to return the car. Both you and the dealer acted in good faith to make a deal. This situation happens quite often and dealers know how to handle it.
Leigh Thompson began writing in 2007 and specializes in creating content for websites. She has been published online in various capacities. Thompson has an associate degree in information technology from the University of Kansas and is working on a bachelor's degree in business and personal finance.
When a car is repossessed, can you get back your belongings that were left in the vehicle? Yes. – Alabama Consumer Finance Attorney Judson E Crump 30
People come to me often looking for help dealing with debt left over after a car has been repossessed by a dealer, bank, or auto finance company. When I ask about the repossession itself, I very frequently hear something like this:
“They wouldn’t even let me get my stuff out of the car. Can they do that?”
If you bought a car on credit, then you took ownership of the vehicle subject to a security interest held by the dealer. A security interest basically means that you’re part-owner of the collateral. Your contract with them gives them certain rights regarding the collateral (the vehicle). The most important right they have is the right to repossess the vehicle when you default on the contract. And as you probably can guess, if you do indeed default on the contract, then they can indeed repossess the vehicle.
But there’s an important thing to remember: they have a security interest in the vehicle, not the items inside the vehicle.
This means that if your car is repossessed, and the repo man, dealer, or finance company has no right to take the property inside the vehicle. For example, if you left your purse in the car and the vehicle is repossessed, they have to give your purse back. They can either mail it to you or give you the opportunity to come and get it. If you call them and ask for your property, they have to make it available to you. It’s that simple. Also:
- They cannot require you to pay a fee in order to come get your property.
- They cannot require you to sign a waiver in order to get your property.
- They cannot take anything out of the vehicle – including any loan, sale, or warranty documents that you left in the vehicle after the sale. Your copies of the transaction documents are your copies. They cannot steal them.
- They can require you to schedule in advance a time to come retrieve your belongings, as long as their requirement is reasonable.
- They don’t have to hold onto your stuff forever. If you want your property back, call them as soon as you know they have it and demand it back immediately. If they refuse, write them a letter and send it certified mail.
- They can require you to sign a receipt that identifies the property that was returned. This is different from a release or a waiver of notices.
Very often, subprime car dealers will utterly ignore the law. Dealers who are accustomed to customers who are ignorant of their rights and cannot afford an attorney know the law perfectly well, but also know from experience that they can usually steal their customers’ belongings without getting caught. Don’t be a willing victim. If you have tried to get your property back and they say something like “We can’t let you onto the premises” or “You’ll have to pay a $25 storage fee” or “You’ll have to sign a release.” That’s all bullshit. Call them on it.
I am an Alabama consumer credit attorney. I specialize in defending people from their creditors. I fight (and usually win) credit card and collection lawsuits. I fight unjust predatory lenders, foreclosures, and I help people recover from credit reporting errors and identity theft. I live in Mobile, Alabama, and I have a wife and 3 children. I love reading and growing things.