You may be able to get out of an upside-down car loan by paying it off in a lump sum or with extra payments, refinancing your car loan, selling your vehicle or surrendering it to your lender.
Ask for a Voluntary Repossession
Voluntary repossession allows you to return a car you financed without being subject to the full repossession process. This could spare you some credit score damage, though a voluntary repo could still be reported to the credit bureaus.
Voluntary repossession can have a significant negative impact on your credit score. This record will stay on your credit report for seven years, potentially making it harder for you to get approved for new credit during this period.
You can sell your car to get rid of it without hurting your credit. This is easiest if the value of your car is close to or above the balance of your loan. You could also transfer your current loan to another person if they're approved for financing and agree to take it over.
Is a surrender better than a repo? A voluntary surrender is generally better than a repossession because it demonstrates that the borrower took the initiative to return the vehicle and resolve the issue. This proactive approach may be looked upon more favorably by future lenders compared to a forced repossession.
If you can't afford your car payments, you can give the vehicle back to your car loan lender. But just because you surrender the car doesn't mean that the creditor has forgiven the debt or that it has to.
Your car will eventually be repossessed if you don't pay your car loan. Before that point, you'll be charged late fees for your missed payments, your credit score will take a significant hit, and you may be charged fees for repossession.
Voluntary surrender and repossession are loan defaults, which stay on your credit reports for seven years. That type of negative mark will harm your scores, especially your automotive-specific credit scores. The next time you apply for a car loan, you'll likely be deemed high risk and charged high interest.
The lender will resell the vehicle, and the proceeds will go toward the balance you still owe on the loan. If there is still a balance remaining after the sale and you don't pay it, it could be turned over to a collection agency. This may result in a collection account being added to your credit history.
When you trade in a car with negative equity, the equity will likely roll into your new vehicle loan. Here's an example… If your current vehicle has $10,000 in negative equity and your new car costs $20,000, you will take out a $30,000 loan from the lender.
When a loan defaults, it's sent to a debt collection agency whose job is to collect the unpaid funds from you. A loan default can drastically reduce your credit score, impact your future eligibility for credit and even lead to the lender seizing your personal property.
The bottom line. It is never too late to walk away from a loan or auto lease if you can no longer afford it. Take the time to understand all of your options and choose what is best for you based on your financial situation. Rebecca Betterton is a writer for Bankrate who has been reporting on auto loans since 2021.
Auto loans
You can default on a car loan after 30 days of non-payment. If that happens, the lender may repossess the vehicle. Further, you may still owe the money even after losing your car. After repossession, the lender will sell your car at an auction.
Depending on your lender, you may be able to negotiate a payoff amount for your car loan. In addition to the lender's policies, other factors that can impact your ability to negotiate include whether you're current on your loan payments, how much cash you have to offer and the condition of your vehicle.
You can go anywhere from 30 to 90 days without paying before you default, depending on state laws. In the midst of rising car prices and interest rates, more consumers are struggling to pay their auto loans.
A repossession typically stays on credit reports for seven years. However, you can take steps to improve your credit before the seven-year period ends. Making consistent smart financial decisions over time, such as responsibly using credit cards, can help steer your credit in the right direction.
The percentage still remains below pre-pandemic levels but has been slowly rising since 2021, when it dropped due to pandemic-related pauses and fell to 1.1 percent. The context here is important: not every delinquent auto loan turns into a default, and not every default will lead to repossession.
In most instances, yes, you can trade in a car with a loan, and some dealers might roll your remaining balance into a new loan. But trading in your car doesn't make your loan disappear. You will still have to pay off the remaining loan balance that your trade-in amount doesn't cover.
The agent will usually be equipped with a duplicate key for the vehicle, but could also enter the car by picking the lock and hot-wiring the engine. In some states, lenders are not required to issue you a notice if they are about to repossess your car.
How Much Does a Voluntary Repossession Affect Your Credit? Estimates vary, but you can expect a voluntary repossession to lower your credit score by 50-150 points. How big of a drop you will see depends on factors such as your prior credit history and how many payments you made before the repossession.
How long does CapitalOne take to repossess my car? Repossession law varies slightly from state to state and range from 3 to 5 months after you stopped making payments on your CapitalOne loan.
Often, a bank or repossession company will let you get your car back if you pay back the loan in full, along with all the repossession costs, before it's sold at auction. You can sometimes reinstate the loan and work out a new payment plan, too.