I returned my car to the dealer – do I still owe money?

Ask the Experts: I returned my car to the dealer – do I still owe money?

Do I owe money on a car I bought and then turned back in to the dealership? – Herbert

Hi Herbert,

Unfortunately, yes, you may still owe on the car. Simply returning a car to the dealer doesn’t necessarily resolve whatever debt is attached to the vehicle.

It’s important to remember that while they’re very closely linked, your car and the loan taken out to pay for the car are two separate things. The car is used as collateral to secure the loan. Regardless of the car’s condition or status, the lender still expects the loan to be repaid. Also keep in mind that the loan covers the purchase price of the car, but – at least initially – the car’s value will drop much more quickly than the balance of the loan. As soon as you drive off the lot, you already owe more on the loan than your car is worth.

When you find yourself unable to make your car payments and ultimately choose to return the vehicle to the dealer (which is known as voluntary repossession), the dealer usually turns around and attempts to re-sell the vehicle. The proceeds from that sale would then go towards repaying the original loan. In most cases, however, the proceeds from the second sale are not enough to repay the original loan in full. The debt left over is still your responsibility.

For example, let’s say you bought a car with a $25,000 loan. A year later you returned it. There’s still $23,000 left on the loan. The dealer manages to sell the car for $18,000. In this scenario you would still be on the hook for $5,000.

Get in touch with both the dealer and the lender to understand the status of your loan. The larger the amount of the outstanding debt, the more likely it is that a collector may begin to threaten legal action, which could include wage garnishment. If your loan payments are too high for you to manage, consider speaking with a certified budget counselor to review your income and expenses and discuss your options. Good luck!

I have a radiology bill that was never paid by my workers comp and went to collections. It has been a couple of years now and I would like to get this account taken care of. How do I track down whichever collection agency owns the account? And how do I handle this situation? I do not have any phone calls, letters, or any information on the account. – Tracy

Hi Tracy,

The first step is to pull a copy of your credit report. Stop by AnnualCreditReport.com to pull a report from one of the three major credit bureaus.

Now take a look at your report – specifically, look at the Creditor Account Information section and the Collection Agency Account Information section. Between the two you should be able to locate the debt in question.

The creditor or collector reporting the debt should also have some contact information listed. When you contact the collector, ask them to send you something in writing showing where the debt originated, how much the debt is, and how that number was arrived at (collectors are allowed to add fees to the debts they’ve purchased).

Once you’ve verified the debt it’s up to you to make an arrangement with the collector to pay it off. You can pay it in full or negotiate a settlement. Whatever you decide to do, make sure you understand the ramifications and that everything is agreed to in writing.

And if the debt isn’t on your credit report at all? You may want to pull your reports from the other major reporting bureaus to see if they show the debt. If no one shows the debt, continue to routinely monitor your credit report going forward, but for now there’s not much you need to do. If it’s not on your credit report, it should have no impact on your credit score or your ability to obtain credit. Just keep in mind that as long as it’s a valid debt, it could show up later, and at a very inconvenient time, so stay alert and keep monitoring your credit report. Good luck!

Jesse Campbell is the Content Manager at MMI. All typos are a stylistic choice, honest.