By GreenPath Financial Wellness
Facing repossession can be a daunting experience, impacting not only your lifestyle but also your long-term financial health. Whether you voluntarily return your vehicle to the lender or find yourself in a situation where the lender picks it up, understanding the implications is crucial.
Understanding Repossession: Voluntary vs. Involuntary
Facing car repossession is a challenging situation. Both scenarios significantly impact your financial health and credit score:
- Voluntary: You take the car back to the lender.
- Involuntary: The lender takes the car back from you.
What is a Deficiency Balance?
A deficiency balance is the difference between what you owe on your loan and what the car sells for at auction. For example:
- If you owe $15,000 and the car sells for $10,000, you still owe the lender $5,000.
- This remaining balance is your responsibility, even after the car is no longer in your possession.
Impact on Your Credit Score
Repossession, whether voluntary or involuntary, negatively affects your credit score. Key points to consider:
- It stays on your credit report for up to seven years, or until paid in full.
- It makes it harder to secure new loans or credit lines.
- Handling the situation wisely can mitigate some of the damage.
How GreenPath Can Help
Before opting for voluntary repossession, consult GreenPath Financial Wellness. We can help you:
- Explore alternatives, such as helping you communicate with your lender or finding ways to catch up on payments.
- If repossession is unavoidable, we can assist you in exploring options to reduce its long-term impact on your finances.
Improving Your Credit Post-Repossession
Rebuilding your credit after a repossession is possible. GreenPath offers personalized guidance including:
- Budget creation and modification
- Strategies to improve credit
- Debt management
- Free educational resources available 24/7
This article is shared by our partners at GreenPath Financial Wellness, a trusted national non-profit.