Returning your car to the lender before you are finished paying it off is called a voluntary surrender or voluntary repossession. In terms of your credit, a voluntary surrender is considered derogatory and will have a substantially negative impact on your scores, so it should be a last resort.
Ask about voluntary repossession: Voluntary repossession involves asking the dealer to take back your car because you can no longer afford the payments.
Good afternoon. Your only real option is to sell the car and pay any deficiency in order to minimize the shortfall. Otherwise, the lender will repossess the car, sell it at wholesale, and stick you with the shortfall.
You cannot return the car. You can sell the car to pay off the loan. Or you can give the car to the bank, they will auction the vehicle off at wholesale price, you will owe the remaining balance of the loan and tank your credit.
Consider voluntary repossession
Voluntary repossession involves working with the lender to repossess your car and sell it in order to recoup some of what you owe on your auto loan. While this may sound like a solid option for getting out of a car loan, it can have some serious negative financial effects.
Note: If you're selling a car with an active loan, you're still the one responsible for paying it off, so the remaining balance on the loan will likely be subtracted from the price the dealer offers you. So if you owe more than what the dealer offers, you'll need to pay the difference to the lienholder.
Here are a few of the big takeaways:
Your car will be sold at auction and you'll be liable for the deficiency. You may face a collection lawsuit and wage garnishment for the deficiency. It will count as a repossession on your credit report.
Coordinate with your lender.
Some lenders might allow you to pay off the remaining balance of your loan when you donate the car. In this case, you essentially buy the car from the lender so you can donate it.
Another option is to give up the vehicle to the lender voluntarily rather than going through the repossession process. The lender may find this option appealing because it avoids the costs of repossession, and it may agree to reduce or eliminate the deficiency balance on the loan.
How does voluntary repossession work? Voluntarily surrendering a car involves informing your lender that you can no longer make payments and intend to return it. Empty your car of all personal items and arrange the time and place to drop off your car and hand over the keys.
You can renegotiate, refinance or sell your vehicle to get out of a car loan you can't afford. Refinancing can be a good option if your credit score has improved since you initially took out the loan. When trying to exit a lease early, be aware of potential fees and consider transferring the lease to someone else.
Negotiate and finalize: You can negotiate with the dealer on the price of the new car, and on how much they will offer you for your trade-in. If the trade-in offer won't be enough to pay off your current loan, the dealer or lender may roll the difference into a new loan.
Voluntary car repossession is only a slightly better option than involuntary repossession. You may be a bit more prepared and have some control over when you surrender your car if it's voluntary. Avoiding some of the extra fees that can come with involuntary repossession can be helpful, too.
Having your car repossessed or surrendering it voluntarily is seen as a major negative event by lenders. They'll view you as high-risk. Expect your credit score to take a big hit, maybe over 100 points or more. That makes getting approved for financing in the future much harder.
Buyer's remorse is a difficult feeling, but once the paperwork is signed, your ability to back out of a car purchase is very limited. Returning a car after the purchase is generally not an option, as most dealerships do not have a return policy once the sale is finalized.
For instance, California law requires dealers to give buyers the option of purchasing a contract cancellation agreement for any used car priced under $40,000. The cost of the agreement is based on the cost of the car and ranges from $75 to $400, depending on the price of the vehicle.
Yes, you can trade in a financed car, but the balance of your loan doesn't just disappear when you do so — it still has to be paid off.
Trade-In Options: Many dealerships offer trade-in options where you can sell your financed car back to the dealership and apply its value towards a new vehicle. This is a popular choice for those looking to upgrade their cars.
Voluntarily Surrender the Car
If you've defaulted on your auto loan, the lender may choose to repossess the car. The process isn't pleasant, and it can seriously damage your credit score. If you want to avoid repossession and have no other options, you can voluntarily surrender the vehicle to your lender.
You can definitely sell your car back to the dealership, but most likely you'll take a bath on the transaction. Dealerships can often offer a better deal on a trade in and make it up on the sale of the replacement, but since you're not replacing the vehicle you're at a disadvantage.
Returning a new car may also be more difficult than taking back a used car, since used cars lose value at a slower rate when you drive them off the lot. Between depreciation and registration, a new vehicle that's returned to a dealer will likely have to be sold as used — leading to a potential loss for the dealer.
While you can trade in a financed car at any time, it is most beneficial to wait until you have positive equity before doing so. It is also a good idea to wait at least a year or more before trading in, especially if you purchased your car brand new.
Does selling a financed car hurt your credit? Selling a financed car to a private buyer or dealership likely won't hurt your credit. However, if you have negative equity, you might need to refinance your auto loan or take out a personal loan to cover the difference between your car's value and what's left on your loan.