26 July 2022 Concept Car
Cars are constantly getting more expensive. But we still need to drive. Combine these two facts and you’ve got a recipe for disaster.
Car prices in the UK have risen pretty much in step with inflation over the past decade. In itself, this isn’t bad news. Especially since average wages appear to be outpacing inflation at the moment. However, for anyone with weak finances, most vehicles have simply become unaffordable.
No wonder repossessions are rising quickly. The damage is horrific. With a repossession, everyone save the repo person stands to loose. The lender probably won’t get their money back and you, as the driver, loose your beloved car. Not to speak of the tremendous stress involved!
Some have suggested voluntary repossession as a sort of deliverance from these problems. But is it, really?
Admittedly, that’s a pretty uninformative statement. But before we get into the details, it’s important to understand that no matter how you look at things, a voluntary respossession is never a good thing.
This notwithstanding, a voluntary repossession may, in select cases, be the best option at your disposal. To make sense of this all, we first need to take a look at a ‘regular’ repossession and why people will do almost anything to avoid it.
Let’s say you bought a car. For the first few months, everything was fine. Then, the Corona crisis struck and you lost your job or at least large chunks of your income. Now, you can no longer afford the car.
What to do? The lenders still expect their money back in full. You can not just sell the car, since it’s not legally yours yet. Borrowing from friends and family will also prove difficult, since they will probably be in a similar predicament.
So, you simply stop paying.
Initially, the lender may let one missed payment slip. After the second or third one, they will most likely send out a warning. But there will come a time when they will pull out the heavy artillery.
Repossession is the heaviest piece of artillery they’ve got.
To put it simply, repossession is the act of taking the car you’re currently driving away from you. This is possible because, although you’re the user of the car and may be driving it every single day, it is not legally yours. As long as you still haven’t paid it off in full, it remains the property of the lender.
Under extreme circumstances, the lender could theoretically take it away from you right before you made the very last payment of your term.
Of course, repossession doesn’t take place in a legal vacuum. The lender still has to respect a few basic rules. They can not enter your property or obduct the car from your garage. They are also not allowed to use violent behaviour to force you to return it.
Just about anything else, including psychological warfare, is fair game. This is one of the reasons why many people dread repossession so much.
On top of what we mentioned, repossessions are very bad news for a variety of other reasons:
With this in mind, it’s easy to understand why a repossession is just about the worst thing that could happen to you.
And then, there’s voluntary repossession. According to some, it’s the miracle cure we’ve all been waiting for. In voluntary repossession, you are turning the tables and taking the initiative. This way, they claim, you can change the entire momentum and impact of the procedure.
Here’s how it works:
As soon as you realise you can no longer keep up your payments, you contact the lender. You reveal your financial problems and tell them that you will no longer make any new payments to them. In return, you offer them to sell your car for you.
There are no repo men involved. Instead, you either drive the car to the lender or they pick it up and you hand the keys to them. They will then sell the car at an auction. If all goes well, the car will fetch a decent price.
Sounds wonderful, doesn’t it?
There are undeniably a few advantages over a regular repossession.
For starters, the emotional pressure associated with it is significantly lower. Writes credit rating agency Experian in a blog post about the impact of voluntary repossession:
“The emotional difference between the two can be day and night — literally. When you surrender the vehicle, you return it to the lender on much more positive emotional terms, usually during business hours. When a lender repossesses the vehicle, they may send someone in the middle of the night to take it while you sleep, which can be much more distressing for everyone involved.”
Secondly, the costs associated with this approach are lower. The lender will not have to contact any repo companies and they won’t have to take the costly legal route to force you to surrender the vehicle to them.
Finally, a voluntary admission of your inability may impact your credit score less than a full-fledged repossession. This is because it signals responsibility and a willingness to cooperate to some lenders.
The thing is: Most of these claimed benefits don’t really hold up to scrutiny. This is why expert websites like Jalopnik have argued that the entire concept seems “completely insane”.
Let’s take a look at the reasons behind this crass statement – and why it is probably true.
In an ideal world, this is how most people imagine a voluntary repossession: They surrender their car, the lender sells it off and that’s it.
This, unfortunately, is not remotely how it works.
In reality, you remain liable for the full loan sum until the bitter end. In practise, this means that the lender will indeed sell off the car at an auction. But if there is the slightest difference between what you owe them and the proceeds from that sale, they will charge it to you.
The big issue with that is that the car is not likely to fetch a very good price. Jalopnik explains:
“The buyers at these auctions know that this is a crapshoot. So, the car sells for pennies on the dollar. The bank then sends you an accounting. What they received for the car, minus the auction fees, minus the legal fees, minus the cost of the repo and the storage, and minus the other sundry fees from the loan contract and you end up with a “net.” That net is applied to your outstanding loan. […] What happens next? The bank sues you when you don’t immediately pay the balance and they get a judgment against you. That judgment includes the amount of the balance, plus attorney’s fees and court costs, plus interest. And this judgment also goes on your credit report.”
This sounds a lot less dreamy than the original version, doesn’t it?
It would be nice to think that everything would be better if we started being nice. Unfortunately, that is not always the case.
It’s naive to think that a voluntary repossession will not affect your credit score in some form. After all, what it comes down to is nothing less than a complete default on your loan. The fact that you’re owing up to it may be admirable. But it doesn’t change the fact that you did not stick to your end of the bargain. From the perspective of a lender, you are no longer a trustworthy candidate for a loan.
Since voluntary repossession does keep total costs in check, it will probably affect your rating a little less. It will also be tagged as ‘voluntary’ in your report, which some potential future lenders may consider.
However, the consequences are still going to be severe. As Experian put it:
“When you voluntarily surrender the vehicle, your credit report will indicate that fact in the status of the account. It will be listed as a voluntary surrender and any remaining balance will continue to be reported.”
We’re also not entirely convinced all lenders will see a voluntary reposession as preferable over a forced repossession. The latter, after all, could indicate that you were at least willing to try until the very last to make things work. A voluntary repossession, on the other hand, can easily be construed as an easy way out.
“Voluntarily surrendering your vehicle may be slightly better than having it repossessed. Unfortunately, both are very negative and will have a serious impact on your credit scores.”
Let’s say the lender manages to get a fair price for your car. You scrape together enough money to cover any outstanding debt. You use public transport to get to work and live frugally for a few months. Surely, things are back to normal now?
Even if you get away with the best possible outcome, a voluntary repossession is going to hit you hard. It will remain on file for seven years. This will make it very hard for you to get finance for any major investment.
Sure, you can make amends, take action and start rebuilding that credit score. But as thousands of people before you will readily testify, that is going to take time.
And so, if you desperately need a car, you’re in a rut. Most reputable banks won’t lend to you. And disreputable ones are most likely to make things worse.
Whatever you decide looks like the wrong choice now.
Voluntary repossession may not be a panacea. But at least it is an acceptable procedure which may be preferable to a full-on repossession in some cases.
Far worse is the evil twin of voluntary repossession, a practise referred to as “kicking the trade”. This is not something you’ll see a lot in the UK. In the US, meanwhile, it has gradually turned into a serious issue. According to an attorney specialising in this type of behaviour, “it happened two or three times per year [in the past]. Now, we hear it at least once per month.”
Let’s define the term:
Kicking the trade is used in a situation where you can no longer meet your loan repayment obligations to a lender. Rather than returning the vehicle, the dealer sells you another car at more attainable terms. You then inform the first lender that you’re opting for a voluntary repossession. After they have sold your vehicle off at an auction, you continue driving your new vehicle.
Again, what sounds perfectly reasonable on paper is, in fact, a truly horrible idea. If you’ve read the entire article, you’ll quickly understand, why.
So, first off, let’s state that it is simply unethical to spend money with a carefree attitude on a new car if you can’t even pay off your first one. After all, you’ve made a commitment to the lender which you can not simply break or ignore.
Secondly, although the practise is not strictly speaking illegal, it is clearly a borderline case. You are obligated by the terms of your contract to repay the loan in full. Taking on a new one clearly makes that goal impossible to attain. In effect, you are forcing the lender into repossessing your car.
It is easy to see why some dealers would want to push kicking the trade. For them, after all, the approach promises a fresh deal. They get to sell another car, regardless whether you can afford it or not. It is the lender and yourself who are at risk.
Well, if you remember well, you remain liable for the full loan sum even if you initiate a voluntary repossession. So, let’s say that you bought a new car with a dealer and are now returning your old one.
The lender will proceed to auction it off. As indicated, chances are high that the price he’ll get will be sub-par. As a result, you still need to pay back the outstanding sum.
So, what’s the situation here?
Before kicking the trade, you had one car loan you couldn’t pay off.
Now, suddenly, you have a new loan you need to pay off plus debt from another loan for a car you no longer own.
It doesn’t take rocket science to understand the second option is far worse than the first one.
In a shocking feature, the Wall Street Journal has reported on the ugly face of kicking the trade. Here are some examples for people tricked into kicking the trade. All of them deeply regret having ever agreed to the practise:
Really, kicking the trade is not just dispicable, it is simply no good. If you’re having financial difficulties, don’t make things any worse by engaging in a practise like this.
So, if repossession is to be avoided, a voluntary repossession merely a last resort and kicking the trade a no-go, what are your options?
It can sometimes seem as though there’s no way out but to default on the loan and accept the seven years of financial famine that are sure to follow. Thankfully, this is not the case.
Here are some of the things you can do to prevent disaster and maybe even avoid a complete default altogether.
For whatever reason, we never seriously take this into consideration. Maybe it’s because many financial companies hide behind anonymous websites and cold contact forms. The most personal you’ll ever get with them is when they send a repo man your way.
In reality, lenders are a lot more approachable than you may think. If you do default on your loan, they stand to loose a lot of money. They derive no pleasure whatsoever from repossessing your vehicle. In fact, they’re thankful for every opportunity to avoid just that.
This is why you should consider approaching them with an offer for renegotiating your loan. The following points should definitely be included:
Sometimes, despite your best intentions and efforts, the lender will nonetheless not be interested in taking up your offer. They may prefer to repossess the car instead and grab the cash they can get at an auction.
Although this may not make sense to you, it is unfortunately their right to do so. Still, you don’t need to give up hope.
Sometimes, another company will be willing to take over your loan and refinance it. Their terms will be different – they may cut some of the loan sum or bring monthly installments down. In some cases, they’ll propose to combine even more of your outstanding debt into a single loan.
Refinancing is a great opportunity, if you can get it. It can save you from a default and it can actually save you money compared to the original loan.
You will still need to make monthly payments, however. So make absolutely sure you set these right. Otherwise, disaster is sure to strike again very soon.
A lot of the problems of voluntary repossession can be avoided by taking a more careful approach from the start.
Firstly, make sure monthly payments are set at a reasonable amount. Yes, you can save some money by paying more and paying the loan off faster. But what good is that if you end up defaulting on your credit?
Work out in advance what your budget will allow you. Don’t deviate from that budget and make it clear to the lender that you will only pay as much as you can. If they’re serious, they will respect you for that attitude.
Yes, a Golf is incredible and may seem like the best choice for a small family. But a Polo offers plenty of space, too, and it’s quite a lot cheaper. Even better, get a Dacia Duster or Sandero, which are truly incredible vehicles and come at remarkably low prices.
And it goes without saying that you should always buy a used car if you’ve got financial issues.
Finally, work with the right financial partner. Traditional banks are no longer the most obvious choice when it comes to car credits. At Concept Car Credit, we have many years of experience working with people who need bad credit car loans. Our offers take your situation into consideration and are tailored to your capacities.
Talk to us now about a loan and visit our digital showroom to see the great cars we have in store for you. Let’s make repossession history!
26 July 2022 Concept Car