Although surrendering your ride still ends with the car back in your lender’s hands, your credit score won’t take such a bad hit and you’ll avoid the bad feelings a repossession creates. But signing a

car loan

agreement always comes with a risk of repossession, so knowing how to surrender a financed car is important.

Car loan expert and

car insurance

broker app

Jerry

is here to walk you through everything you need to know about how to surrender your car to a lender. We'll also show you how to lower your car expenses using our

trusted insurance comparison app

What is a car loan surrender letter?

A car loan surrender letter notifies a lender that you can't keep up with payments and will return the vehicle. By notifying the lender and initiating a voluntary surrender, you can prevent defaulting on the loan and repossession of your vehicle.

Because even a voluntary surrender can hurt your credit score, you should think of a car loan surrender letter as a last resort if you’re unable to keep up with payments. Consider all your other options, first:

Arrange an alternative payment agreement with your lender that takes some pressure off your finances

Refinance your car loan

Trade in the car if your balance is less than the car’s value

MORE: How to trade in a car with a loan

How to write a car loan surrender letter

Because a car loan surrender letter will negatively impact your credit score, it’s a serious decision. But if it’s your only option, it’s a smart move to prevent forceful repossession.

Here’s how to surrender your car to the bank with a car loan surrender letter:

Identify yourself and your vehicle. Be sure to include an account number so that your lender can match your letter to your records.

Explain that you’re unable to make payments and intend to surrender the car.

Provide contact information so that your lender can reach you.

Request signature confirmation of delivery if you’re sending the letter by mail.

Keep a copy of the letter for your records.

Once you’ve submitted a surrender letter, call your lender to arrange a safe time and location to drop off your vehicle. If you don’t want to send the letter by mail, you can also drop the letter off along with your vehicle.

A voluntary repossession won’t wipe away your debt—you’ll still be responsible for payments after you surrender your car. Your lender will try to sell the car on your behalf and you’ll be responsible for your outstanding balance minus the sale price. This lower balance is known as the deficiency balance.

Key Takeaway Writing a car loan surrender letter won’t erase your debt, but you’ll likely pay a reduced balance if your lender can sell the vehicle.

MORE: How to reduce car payments without refinancing your car loan

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What’s the difference between voluntary surrender and repossession?

The main difference between voluntary surrender and repossession is that voluntary surrender allows you to avoid the chaos and humiliation of a forceful repossession.

When you surrender a financed car, you’ll still be responsible for a deficiency balance—and voluntary repossession will still affect your credit score. But writing a car loan surrender letter shows future lenders that you took responsibility for your debt rather than forcing the lender to take drastic action.

The bottom line: even though it’s not ideal, it’s easier to repair your credit after voluntary surrender than a repossession.

Key Takeaway Voluntary surrender will impact your credit score, but it shows future lenders that you’re responsible and won’t force them to repossess your car.

MORE: Does refinancing a car hurt your credit score?

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If you need some extra cash to help with your car loan payments, try shopping for cheaper car insurance.

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