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.
Selling, trading in, refinancing, or negotiating a payment adjustment are usually better options to get out of a car loan without negatively impacting your credit score than running afoul of a knock to your credit.
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.
One way to get out of a car loan is to sell the vehicle privately. 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.
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.
In some instances, a dealer may accept the return of a financed vehicle if it's necessary to avoid repossession. What's important to keep in mind here is that a vehicle's value depreciates quickly. Even after just a few months of ownership, you may owe more on the car than it's currently worth.
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.
They can sue you for the balance you didn't pay for the down payment, but unless it was in the contract they can repossess, the law in CA doesn't allow it. Under California law, a breach of contract occurs when one party fails to fulfill a legal duty the contract created and causes damages for the defendant.
Extra payments made on your car loan usually go toward the principal balance, but you'll want to make sure. Some lenders might instead apply the extra money to future payments, including the interest, which is not what you want.
Trade In or Sell Your Vehicle
If you need more than just short-term relief and refinancing isn't an option, it might be worth it to get rid of the car. You could either trade it in to a dealership or sell it to a private party and buy a used vehicle.
Car loans are secured debts, so the lender can repossess your vehicle if you stop making payments. A surrender is when you as the owner voluntarily gives the vehicle back to the lender when you file for insolvency proceedings.
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.
Trade-In Value Determination: The dealership will provide you with an offer for your trade-in based on their appraisal. Negotiate: If the trade-in offer is acceptable to you, you can negotiate the terms of the deal, including the price of the cheaper car you wish to purchase.
If you can't afford your car payments, you can give the car back to your car loan lender in a "voluntary repossession." But think carefully before you do this—you might still owe the lender money.
Each can appear on your report as a separate entry. Repossessions, collections, and court judgments can remain on your credit report for up to seven years, reading as a derogatory mark and dropping your credit score by 100 points.
The car is collateral for the loan, and until the loan is fully repaid, the lender holds a lien on the vehicle. So, can you sell your car back to the dealership if it's still under finance? Yes, you can. However, there are specific steps you need to follow to ensure the process is legal and smooth.
To sell a car you still owe money on to the retailer, you must provide loan information so CarMax can pay off the lender. If you owe more than your offer, you will need to cover the difference. In some cases, the amount can be included in your financing or paid directly to CarMax.
Most loan contracts typically don't allow for transfers, and mainstream lenders generally refuse such a request.
When the dealer buys back the car, they refund the consumer all the money spent on the vehicle minus a “usage fee” calculated based on how long the consumer drove the vehicle before returning it to the dealership.