A car loan surrender 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 car loan surrender, which will depend on the contract the consumer has with the lender.
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.
Car loan surrender 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. 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, car loan surrender 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. 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 car surrender 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.
By Andre Bradley