A voluntary repossession letter is sent when the consumer can no longer make payments on a secured loan. It is most commonly used for automobile loans.
According to the Uniform Commercial Code (UCC) Article 9, which has been adopted by most states in some form, the lender has a security interest in the car.
This is what gives the lender the right to repossess the car if the consumer defaults on payments. However, this law does not cover voluntary repossession, which will depend on the contract the consumer has with the lender.
Definition Of Default Is Not Specified In Article 9
The definition of default is not specified in Article 9, but it usually means the consumer has not made payments for 30 – 90 days. Even if the consumer voluntarily gives back the car, they are still liable for the balance of the loan.
In most cases, the lender will sell the car at auction and put the amount received towards the consumer’s loan. If there is a deficiency, which means the amount received did not cover the loan, the borrower must pay it.
The lender must notify the borrower when they are going to sell the car. It is recommended for the borrower to immediately contact the lender to find out what the deficiency is and to make arrangements to pay it.
Otherwise, the lender may request payments that are too large for the borrower to pay each month.
Voluntary repossession does not help the borrower unless the lender waives the right to a deficiency, which most lenders will not do.
The borrower’s best option is to sell the car him or herself because they will get more than the lender would get at auction, and the deficiency will be less.
need the lender’s permission to sell the car?
The borrower may need the lender’s permission to sell the car, but since lenders would most likely prefer to avoid the hassle of selling a car, they will agree.
In most cases, voluntary car repossession means the borrower needs to return the car to the lender. This will save repossession costs and fees.
In an involuntary repossession, the lender will go to the borrower’s house and take the car, but this means they will hire a repossession person to pick up the car, and the cost of this will be charged to the borrower.
credit rating will be negatively impacted
Whether the repossession is voluntary or not, it will negatively impact the borrower’s credit rating for seven years from the time they stopped making payments.
The voluntary repossession letter should state the borrower’s name and address as well as the loan account number, the VIN and any other way to identify the vehicle.
It should clearly state that the borrower is giving the car or other item back to the lender because the borrower can no longer afford to make the monthly loan payments. It should state that the borrower does not want to negotiate lower payments and wants to give up the car.
It is not necessary for the letter to state why the borrower cannot afford the monthly payments. The reason is not important for the lender, and it may cause confusion. The letter should be simple and straightforward.
When the borrower drops off the car, they will give the keys and registration papers. There may be documents the lender wants the borrower to sign at that time.
The borrower should ask for a written statement from the lender that proves the car was returned, and that the borrower has no more obligations.
Here is a sample voluntary repossession letter. It should be sent by certified mail, so the borrower has proof of the time and date the letter was received.
Sample Voluntary Repossession Letter
City, State, Zip Code
Lending Institution’s Name
City, State, Zip Code
RE: Voluntary repossession of car loan Number
Dear Name of Lending Officer, or To Whom It May Concern:
This letter is to formally inform you that I would like to voluntarily give up the Year and Model of Car and VIN. My financial situation has changed, and I am no longer able to make the monthly payments.
I understand that I must bring the vehicle to you, and that you will sell it at auction. I will be responsible for the difference between what you get for the car subtracted from the balance of my loan.
I will drop off the car according to your instructions and give you the keys and registration papers.
I have understood that, with your permission, I could sell the car myself and pay off the loan. If this is agreeable to you, kindly inform me in writing, so I may sell the car privately.
I can be reached at 555-123-4567 or at Name@email.com if you have any questions or would like to give me further instructions.
Thank you for your attention to this matter.
Signature of Borrower
Printed Name of Borrower