I Can't Afford My Car Payments. Can I Give the Car Back to the Bank?

If you can't afford your car payments, you can give the vehicle back to your car loan lender. This option is called a "voluntary repossession." But just because you surrender the car doesn't mean that the creditor has forgiven the debt or that it has to.

So, if you're giving the car back under the assumption that the creditor will write the loan off, think again. The creditor can still sell the vehicle and sue you for any deficiency. So, carefully weigh your options, and the pros and cons of each, before you take action.

What Is a "Deficiency" After a Voluntary Car Repossession?

If you return the car to the lender in a voluntary repossession, the lender will likely sell it. It will apply the proceeds of the sale to your car loan balance, after reimbursing itself for the costs of sale and certain fees. However, often the sale proceeds aren't enough to cover your loan balance; the remainder of the loan amount is called the "deficiency."

The car loan lender can then demand payment of the deficiency. If you don't pay up, it can sue you, get a judgment, and then use various collection methods, such as wage garnishment or bank levies, to get paid.

Work Something Out With the Lender

If you still want to surrender the car, you can try to work something out with the creditor, like negotiating a reduction or waiver of the loan balance as a condition of returning the car. After all, you're saving the creditor the time and costs of a repossession and auction (granted, most of those costs would still be passed on to you anyway).

Alternatively, if you want to keep the vehicle, you might be able to work something out with the lender. Your lender might be able to offer you a solution, such as a reduction in payment amount or interest rate, that can help you better afford the payments and avoid repossession.

Sell the Car Yourself

You might also want to consider selling the car yourself. If you can find a buyer who would pay at least as much as what the car might sell for at auction, then the lender might agree to the sale and waive all or part of a deficiency balance.

Surrendering Might Be Better Than Repossession

Even if the creditor won't cut you a break on the deficiency balance, surrendering the car might still be the best thing you could do under the circumstances. It could save you the extra costs and fees of a repossession, which the creditor can add to the deficiency balance you might owe later.

Learn more about surrendering a car in and outside of bankruptcy.

Talk to a Lawyer About Voluntary Car Repossession

You might want to consult with an attorney before you try to negotiate with the lender to ensure that you fully understand your rights and the risks involved.