How to Get Out of a Car Loan

An auto loan is a useful tool for getting behind the wheel of a new or pre-owned car when you don’t have the cash to pay for the purchase in full. But if your financial situation changes, the monthly car payment might not be feasible anymore. Knowing how to get out of a car loan is an important aspect of entering into a financing agreement.

Explore Rates For Car Loans Here

Whether you’re considering a loan or already have one and need to make a change, this guide on how to get out of a car loan can help. We’ve compiled a few options for trying to alter the terms of the deal or get out of the loan altogether.

Sell the Car

One quick way to get out of a car loan is to sell the vehicle through a private sale. If you’re not upside down on the loan, meaning the car is more valuable than what you currently owe on it, you can use the proceeds of the sale to pay off the current loan in full. Another term for an upside-down car loan is negative equity.

Before listing your vehicle, reach out to your lender to request the payoff amount. This amount usually differs from the remaining balance you can see on your statement or online account. By requesting the payoff amount, you can determine how much you need to sell the car for to pay off the loan.

If you financed your existing loan through a bank or credit union, you might need to take the funds to a physical location to complete the payoff. Online lenders might accept checks or other payment methods by mail, or you might have to go into a partner location to pay off the loan balance.

After the payoff, you won’t owe car payments anymore. If you still need a vehicle to get around, consider obtaining new auto financing to purchase a less expensive vehicle with a monthly car payment that fits into your budget.

If you do owe more than what you can sell the car for, you won’t be able to pay off the loan in full with the proceeds from the sale. In this case, you could cover the difference with a personal loan or cash. You might also want to consider another option to get out of the loan.

Renegotiate the Terms

When you’re facing a difficult financial situation that affects your ability to make your monthly car payment, reach out to the lender to discuss options.

Many borrowers go through periods of hardship, whether due to job loss, economic downturn, or other situations. Lenders offer options to individuals experiencing difficult times, and you won’t be the first or the last to request assistance.

Read more  17 Easy Ways to Find Mortgage Leads Online

Some lenders can offer a temporary pause on payments, allowing you to get back on your feet without losing your car. Another option is to renegotiate the terms of the loan. You could pay a lower payment for several months while you seek employment or adjust your financial situation in other ways.

A lender is more likely to work with you if you can explain the reason for your financial hardship. For example, if you lost your job but work in an industry with many opportunities, you could share this and demonstrate your commitment by showing proof of applications you’ve submitted to open positions. If you experienced a health problem that impacted your ability to work or caused a financial burden, emphasizing that this is a one-off situation could help you qualify for a loan relief option.

By requesting a loan renegotiation, you might be able to get a lower car payment or even skip a few payments. Make sure to discuss any implications these actions might have on your credit. When a lender offers relief, they typically agree to not report the missed payments to credit reporting agencies as long as you adhere to the terms of the renegotiated loan.

Refinance the Loan

If interest rates have dropped since you finalized your auto loan, refinancing is a good option that can help lower your monthly car payment. When you refinance a loan, you enter into a new loan agreement with either the same lender or a different one.

The new loan provides funds to pay off the previous loan, and you make your monthly payment on the new loan. When you can secure a lower interest rate, your monthly payment can go down because you’ll pay less each month in interest.

Some lenders place restrictions on auto loan refinancing, including outstanding balance limits, mileage caps, and the age of the car. If you’re experiencing financial hardship, talk to your lender to figure out whether refinancing is a viable option for you. Borrowers who are behind on payments or dealing with other issues that negatively affect their credit might have a harder time qualifying for refinancing.

Pay off the Loan

Another option to get out of a car loan is to pay it off yourself. If you have enough cash to cover the full payoff amount, you might want to consider this option to eliminate monthly payments.

Even if you can’t swing the full amount, paying extra each month goes directly toward the principal balance, which pays off the loan faster. Those who can afford to pay over their monthly car payment will get out of their loans faster than those who only pay the required amount.

Consider a Voluntary Repossession

Voluntary repossession should be the last resort if you’re in a dire financial situation and can’t get out of your loan any other way. When you give possession of the vehicle to the lender voluntarily, you might not experience as much of a hit to your credit. But it’s important to understand how this process works.

Read more  Where to get a $6,000 loan

When you agree to a voluntary repossession, you start by informing the lender that you can’t make the monthly payments anymore. The lender will provide a time and place to meet for surrender. Keep a record of when and where you dropped the vehicle off and who took possession of it.

After the creditor takes possession, they will try to sell the car. When the sale happens, you’ll get a statement that outlines the details, including the purchase price and what you still owe the lender. The difference is known as the deficiency balance, and you’re responsible for paying the full amount.

Should you fail to pay, the lender can turn the remaining balance to a collection agency. You might also be on the hook for any related fees, including late or missed payment fees.

Both voluntary and involuntary repossessions are considered loan defaults, so they will have negative effects on your credit. But when you surrender a car voluntarily, this action is noted on the credit report. If you’re closing in on having the car repossessed due to a true inability to make your monthly payments, it might benefit you to choose to return the car instead.

Other Options

When you’re wondering how to get out of a car loan, you might also consider how you can change your financial situation. The options outlined below could help you afford your monthly payment or qualify for a better rate:

Pick up Another Job

If you’re struggling financially, it might be worth getting another job to earn extra income. You could offer your services as a driver, for instance, delivering food or transporting passengers to their destinations.

Other side gig options that don’t require much experience include taking online surveys for pay, providing pet care for cat and dog owners in your area, or performing setup and tear-down duties at local events.

Work on Your Credit

Your credit history plays a major role in the interest rate you can qualify for on a car loan. If you have poor credit, you might pay more interest, resulting in a less affordable monthly payment. By taking steps to boost your credit score, you might be able to refinance the loan at a lower rate.

The first step is requesting credit limit increases from your current creditors. When you have a higher limit, your credit utilization goes down instantly, and you can get closer to a good credit score. If you can’t qualify for a higher limit, consider becoming an authorized user on someone else’s credit account with a high limit. You can also dispute any errors on your credit report to ensure accuracy when a lender pulls your credit for a loan.

Adjust Other Spending Habits

You might be overspending in other areas, resulting in a lack of cash to cover your car payment. By making a few adjustments to your spending habits, you could improve your financial situation and ensure you have enough to pay each month. Look for nonessential spending you can curb, such as canceling streaming accounts or cooking at home instead of dining out.

Read more  Penn State Federal School Code

Getting Out of a Car Lease

Another question that often comes up is how to get out of an auto lease you can no longer afford. It’s generally easier to get out of a lease than it is to get out of a loan, but you could still face consequences for failing to meet the terms of the agreement.

Trade in the Car

You might be able to trade in the leased vehicle and enter into a new lease agreement. However, a lease might only apply to a new car, so if you’re having trouble affording the payment, this might not help you much financially.

Buy Out the Lease

An early lease buyout involves purchasing the vehicle based on its residual value at the end of your lease. If you choose this option, you can either pay the remaining balance in cash or secure an auto loan to cover the cost.

Transfer the Lease

A lease transfer allows another person to take over the lease agreement on your behalf. This option is also referred to as a lease takeover or assumption. If you can find a qualified individual who’s interested in taking over the car payments and keeping the car for the remainder of the lease term, it’s worth seeing if your agreement allows for this option.

Even if you don’t know anyone personally who will take over your lease, you can use third-party platforms that match lessees with people interested in taking over leases. You might be subject to a lease transfer fee, plus any fees associated with transporting the car to its new owner, using the third-party platform, and completing the credit check required to transfer the lease to a new lessee.

Terminate Early

Early termination is another option for getting out of a lease. However, this action usually requires paying an early termination fee, which is often the residual value. In a lease agreement, the residual value is the difference between the amount you owe and the estimated worth of the vehicle at the end of the term.

You might also have to pay transfer or disposal fees, but your lease agreement should outline any applicable fees. In general, this action should be a last resort because it’s likely the most expensive way to get out of a lease.

If you’re wondering how to get out of a car loan, consider all your options before making a decision. Entering into a loan agreement to purchase a vehicle affects your credit, and failing to meet the terms of that agreement can create a mark on your credit history. By taking the right step toward getting out of your current loan, you can potentially minimize credit damage while improving your financial situation.