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Does repossession eliminates your car loan debt?

If you have defaulted on car loan debt, then having your vehicle repossessed will not satisfy your debt. You may still owe money to your creditor. Moreover, repossession will lower your credit score. Therefore, it is better to find out alternative ways to pay off the car loan debt.


I was working in a multinational company for several years. But, I lost my job during recession. I am working in a small private company now. The salary is not great. The money is not enough to cover all my expenses. Moreover, I have a huge car loan debt. Actually, I took out the loan when I was earning well. I thought that I would be able to pay off the car loan. But that is history now. The interest rate on the loan is around 25%. The outstanding loan amount is $55,000. My credit score is not good because of several negative items on my credit report. I can't afford to repay the car loan with the money I earn now. So, I am planning to get delinquent on the car loan and having the vehicle repossessed. Am I taking the right decision? If not, then what should I do? Please advice. 


After going through your query, it seems that you have lost all hope of repaying the car loan debt. It's too early to be so pessimistic. It is true that your financial situation and credit report is not in a good condition. But instead of losing all hope, you should start looking for ways to mend the situation.

It is completely a myth that having your vehicle repossessed will wipe out your car loan debt. You must have pledged your car as security when taking out the loan. If you get delinquent on the car loan, then your lender is likely to repossess it. If you think that repossession will satisfy the car loan, then you're making a great mistake. Rather, you'll be entangled with fresh problems. You'll lose your favorite car, which means that you'll have to travel by bus from now onwards. You don't have financial resources to purchase another car and you may still owe money to your creditor. Apart from that, repossession will also bring your credit score further down. 

In most cases, creditors sell the repossessed vehicles at an auction. Sometimes, the creditors sell the vehicles for much less than the total debt amount. A part of the sale amount is used to cover the repossession and selling costs. If the remaining amount satisfies your outstanding loan balance, then you don't have to pay any more money to your creditor. But if it the sale amount is less than the total debt amount, then you're still responsible to pay the deficit balance. You'll also have to pay the auction costs, legal fees, and repossession expenditures.  

I would suggest you to determine the fair market value of your car. I think you can get a better price if you sell your car on your own as compared to what you'll get by selling the vehicle at an auction. Once you have sold your car, calculate the deficit balance on the loan. Start searching for a better job and plan your budget wisely. A proper budget will help you save lot more than what you're doing now. You can also take advantage of personal budgeting software to plan an effective budget. If you don't get a better job, then start doing part-time jobs. You can even take out a personal loan from your family and repay the deficit balance.  

Finally, if your car is repossessed, then expect to get a call from your creditor regarding the payment of deficit balance. If you don't pay it, then your creditor may assign the account to a collection agency. This will aggravate your problems instead of solving it. If you really want to lead an organized financial life, then start repairing your credit now and avoid getting into debt problems in future.

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Jason Holmes is a regular writer with Debt Consolidation Care and is also a contributory writer with other financial sites. His expertise is woven around various aspects of the debt industry and with his e-books he tries to impart to people the different situations and simple solutions to get out of difficult situations. Some of his works include e-books like 'Credit Score The Quintessential Therapy for a Happy Pocket', 'Take Creditors and Collection Agencies to Small Claims Court' and, My Story- From Depression To a Smile'.

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