Are you stuck in what seems like a never-ending cycle of car loan payments? You don’t have to be trapped paying a car loan forever. Although it’s not always easy, there are several ways that can help you get out of a car loan.
Can you get out of a car loan?
Depending on the terms of the loan, it may be possible to get out of an auto loan if you negotiate with your lender. But if you are past due on payments, your lender may not be willing to work with you. In addition, there may also be penalties associated with trying to exit an auto loan early, such as early termination fees or higher interest rates that must be considered before making the decision to try and get out of a loan.
How to get out of a financed car
You’ve got several options for getting out of a financed car. Some of these options will affect your credit and could mean you still owe the lender money.
Renegotiate the car loan
Waiting until you can no longer afford your monthly payment is a bad idea. To discuss a new arrangement, call your lender. If you have a track record of making loan payments on time, they might be willing to assist. In addition to options like a lower interest rate or longer payment terms, the lender may offer a forbearance, which temporarily postpones your payments.
Sell the car
Consider selling the car outright and using the money to pay off the loan if you want to get rid of both the car and the loan. If your car has amassed equity, doing this might be a good idea as you might be able to sell it for more than you owe, leaving you with some extra money to put toward a new vehicle.
Refinance your car loan
Refinancing the loan is one option for getting out of your current auto loan. A refinanced loan will technically replace your existing auto loan. You’ll still keep the car and continue making payments, but refinancing may reduce your monthly payment depending on the interest rate. On the other hand, it may have an impact on your credit score and extend the payment for several years.
Trade in the car
You may be able to trade in your car for a less expensive car. To determine the value of the vehicle, use online resources like Kelley Blue Book. When you have negative equity and owe more money than the car is worth, you are said to be upside down on your loan.
The dealer will add the negative equity to the loan on your new car if you trade in the car but don’t have enough cash to pay off the loan. Your loan amount will be higher than it would otherwise be for the second vehicle alone because the monthly payment will include both the loan for the second car and the negative equity from the first car.
Voluntary car repossession may sound scary, but it can actually be a great way to get out of an unaffordable loan. It may be difficult at first, but if you’re already facing late payments and other financial hardships, it could mean the difference between getting by or struggling even more.
You can give back the vehicle to the lender and start fresh with a clean slate. It won’t remove all of your financial obligations completely, but it should help reduce your overall debt load.
You’ll get put on the fast track toward building better credit for when you want to purchase again down the line. Before taking voluntary action though, weigh your options and do research — while it might seem like a good idea now, there may be another viable solution that could help more in the future.
Will getting out of a car loan affect my credit score?
Getting out of a car loan typically won’t hurt your credit score as long as you continue making your monthly payment. When you pay off the loan, you may see a slight drop in your credit score — this is normal. If you have other revolving accounts, the dip is usually only temporary.
Why you should avoid defaulting on your car loan
Defaulting on an auto loan should be avoided if possible. Not only does this result in a permanent blemish on your credit report that can take years to repair, but it may also lead to costly legal fees, legal action from the lender, or repossession of your vehicle, which can also be harmful to your finances. Defaulting on an auto loan can also lead to increased interest rates and other unfavorable terms on future loans, further affecting your financial situation.
Why you should avoid auto loans you can’t afford
If you take out a loan that’s more than you can afford to repay, it’ll quickly become a financial burden. Overextending yourself on an auto loan can result in missed payments and late fees, which can harm your credit score and make it challenging for you to get approval for other loans in the future.
Plan ahead and make sure you are able to meet any regular payments for your auto loan before agreeing upon a contract with a lender. Create a budget and consider any emergency situations that could cause problems with making payments in order to protect yourself from defaulting on an auto loan.
No one wants to be stuck in a car loan they can’t afford, but sometimes life happens and you find yourself there. If you’re struggling to make your car payment each month, there are ways you can get out of the loan. You can work with your lender to come up with a new repayment plan or sell the car and use the money to pay off the loan. Whatever you decide to do, make sure you act fast so you don’t fall behind on payments and damage your credit score.
What happens if I don’t want my financed car anymore?
If you don’t want your financed car anymore, you can either sell it, trade it in, or voluntarily give it back to the lender. Keep in mind, you’ll still need to pay off the balance of the loan.
Does voluntary repossession hurt your credit?
It’s best to talk to your lender if you’re having trouble making car payments. They may be willing to work with you, and giving back the car voluntarily is better for your credit score than having the car repossessed.
Can a car loan be written off?
Yes, lenders may choose to write off auto loans when they believe they’re unlikely to collect the debt. But a write-off doesn’t mean the debt is forgiven.