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Life is not always a ride on a merry-go-round. You often find yourself on see-saw, going up and down. This holds good for your finances too. When your monetary position has touched its lows and you are unable to pay back secured loans voluntary repossession might cross your mind.
What is voluntary repossession?
Voluntary repossession is a term used to explain the circumstances in which borrower voluntarily hands over the purchased items securing a loan like automobiles, house, furniture to the lender. It is a situation where a borrower can no longer meet the loan obligation and decides to return the purchased items rather than waiting for the creditor to seize the property
Steps involved in voluntary repossession
First and foremost one should evaluate his/her monetary situation and decide if voluntary repossession is the only option left to come out of the hard times. Avoid voluntary repossession if the future holds any promise and you expect money to flow in as voluntary repossession will not free you totally from burden.
Once you have made up your mind about voluntary repossession of the property, seek an appointment with your creditor and explain the situation. Quite often lenders come up with different options to save the loan from breaking. He might extend the time period or grant some concessions to avoid repossession. This is the time to re-evaluate your decision and if you truly cannot afford the payment opt for voluntary repossession.
Next step involves zeroing on when and where the property should be repossessed. You may allow the lender to come and pick up your vehicle or a house key or any item as the case may be or take it to the lender yourself. In either of the cases, handing over costs is generally borne by the borrower.
If you think you can relax now, hold on! Once the collateral reaches the lender's hand, it is most likely that he auctions the property and if the realized sales proceeds are below the debt amount, such balance is paid by the borrower. This is known as deficiency balance. (note that auction most often fetches lower rate than the prevailing market rate)
Non voluntary repossession or voluntary repossession
Voluntary repossession is relatively better as both borrower and lender have talked it over and are in sync with each other and the borrower need not wake up to a rude shock of confiscation of his property. Except for these reasons borrower does not benefit in terms of cost (e.g. auction fees) or credit score. Repossession whether it is regular or voluntary reflects in credit report and lowers the ability of rating loans in
future. If you are smart enough, negotiate with your lender not to report the repossession to the credit agencies. It is hard to part with your prized possessions but if that is the only option left, why not do it gracefully?