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LendingTree is compensated by companies on this site and this compensation may impact how and where offers appear on this site (such as the order). LendingTree does not include all lenders, savings products, or loan options available in the marketplace.

Can You Return a Financed Car Without Penalty?

Updated on:
Content was accurate at the time of publication.

Are you wondering if you can return a financed car back to the dealer? Unfortunately, there is no simple yes or no answer. While there are certain situations where a return may be possible, there are also occasions where it’s unlikely.

To that end, here’s a look at when you can and can’t expect to be able to make a return. We’ve also compiled some alternative options for those times when returning your car isn’t in the cards.

Most of the time, unfortunately, you can’t return a financed car. Although there are a few scenarios where it may be possible (more on that below), they are few and far between. Plus, even when you do meet the criteria for a return, there may be some financial repercussions to going that route, including:

  • Owing loan cancellation fees: Some auto loan agreements allow for debt cancellation under specific circumstances. However, when you enact this clause, your lender may charge you a fee. Be sure to read your loan contract to get a better sense of when this clause can be used and what fees you might face.
  • Ending up underwater on your loan: Because cars lose value over time, it’s possible that you may still owe money on your auto loan despite returning it. (For example, if you borrowed $20,000 and the dealer determines your car is worth $15,000 at the time of repossession, you could still be on the hook for paying the remaining loan balance of $5,000.)

Still, if you’re unhappy with your vehicle purchase, it’s worth exploring the options that are available to you, and it may even be worth taking the risks above. Keep reading to learn more about the various factors that should weigh into your decision.

While it’s fairly uncommon to be able to return your car after you’ve signed on the dotted line, there are a few exceptions. Here are four occasions where a return may be possible:

1. Your dealer has a return policy

Sometimes referred to as a “money-back guarantee,” there are dealers who advertise a return policy as part of their marketing strategy. For instance, Carvana has a seven-day policy, while CarMax boasts a similar one that lasts for 10 days.

If your dealer has a policy like this, you should be good to go, as long as you make sure to return your car during the return window. Be aware, though, that occasionally dealers will include additional stipulations in these policies. You may not, for instance, be able to return the car if it’s been damaged or has another lien against it, other than the auto loan itself.

2. You got a lemon

On both the federal and state levels, lemon laws protect car owners who are under warranty from having to suffer through living with cars with substantial defects. While each lemon law is a bit different, these laws broadly state that if a vehicle’s manufacturer can’t fix the issue after trying to treat it a reasonable number of times while it’s under warranty, then it is required to refund or replace your vehicle.

If you think you have a lemon, contact your state’s Office of the Attorney General. As the top legal officer in the state, lemon law claims typically fall under their purview, and they will be able to connect you with the correct resources to begin submitting your claim.

3. You fell victim to a bait-and-switch

Often, signing the paperwork for a new car is a fast-paced process. In the past, dealers were able to use that period of confusion and heightened emotions to pull a bait-and-switch, offering consumers a different vehicle or financing offer than they agreed to in the first place. Usually, one that resulted in higher profits.

Fortunately, the Federal Trade Commission’s (FTC) new CARS rule prohibits misrepresentation on the part of the dealer and requires it to clearly outline any financing offers, optional features and add-ons.

If you think you’ve been a victim of fraudulent behavior on the part of the dealer, contact the FTC’s Fraud division. Once you let them know what happened, they’ll help you sort out the best next steps to take and, if fraudulent behavior is found, they’ll report it to their law enforcement partners who can open a local investigation.

4. You’re being deployed for military service

Under the Servicemembers Civil Relief Act (SCRA), certain active-duty servicemembers may have the right to terminate their vehicle lease early, without paying penalties or early termination fees.

The provisions under this act apply to those who are called to active duty, receive orders for a permanent change of station internationally or are deployed for 180 days or longer. The protections also vary depending on where the duty station is located and whether the lease was entered into prior to or during active-duty service.

This law only applies to auto leases and not auto loans.

Next, let’s look at a few common instances where you may want to return your vehicle, but it’s unlikely that a return will be accepted.

1. You have buyer’s remorse

Maybe you decided that you don’t like your car’s color after all, or you’ve realized that a minivan is a much more practical option for you than a sedan. Whatever the reason, if you have buyer’s remorse on your vehicle purchase, you’re likely going to be out of luck once the financing goes through.

Dealers generally aren’t required to provide a grace period where you can return the car and receive a refund. Unless they advertise a service like this as part of their marketing, it’s unlikely that they’ll honor your request for a return.

2. You can’t afford your payments

Whether your new financing payment is more than you originally set aside in your budget or your financial situation has changed and your paycheck is spread thinner than expected, unfortunately, being unable to afford your payments is not typically considered an acceptable reason to return a car to the dealership.

If you find yourself in a period of financial hardship, consider asking your dealer about payment assistance options or look into refinancing your auto loan instead (more on those below).

Now that you know when you can and can’t return a car to the dealer, let’s look at some alternative options. Like any financial decision, each one has its own pros and cons. We’ve outlined them for your consideration below:

Alternative methodProsCons
Discussing hardship assistance options with your lenderCan be helpful if you’re experiencing temporary financial difficulties, like a job loss.Not all lenders offer hardship assistance options, and you’ll still owe the same amount on your loan. The loan terms may just change.
Refinancing your car loanRefinancing allows you to keep your car and protect your credit score.You may be charged upfront fees to refinance, and you’ll still owe the same amount on your loan. You’ll likely just pay it off over a longer period of time.
Trading in your carTrading in your car allows you to find a car you like while lowering the overall amount you owe to the dealership.Due to depreciation, your car's value may be lower than your loan amount, causing you to owe money on a car you can no longer drive. You may also owe money on your trade-in, depending on the car you pick.
Selling your carSelling your car allows you to pay off your financing directly, without having to go through the dealership.You won’t have a car at the end of the transaction, and you may still owe money on your auto loan due to depreciation.
Asking your dealer about voluntary repossessionVoluntary repossession can be a last-resort alternative to having your car repossessed by the lender.Although the effects aren’t as bad as a full repossession, voluntary repossession still harms your credit score and makes it harder to borrow money in the future.

  • Discuss hardship assistance options with your lender: Some lenders have repayment assistance options for when you experience periods of temporary financial hardship. These programs usually involve some form of debt restructuring, such as payment deferral, forbearance or loan modification.
  • Refinance your car loan: Refinancing your auto loan involves taking out a new loan, usually one with better terms, and using it to replace your old one. However, this method usually comes with some upfront costs to close on the new loan, like origination fees.
  • Trade in your car: As the name suggests, trading in your car involves swapping out your current vehicle for another one. Be aware that there will likely be a price difference between your old car and your new one, so you may still owe money on your auto loan once the swap is complete.
  • Sell your car: Meanwhile, selling your car can be an efficient way to pay off your car loan, possibly without ever having to involve the dealership. However, you’ll be without a car at the end of the deal, and if you aren’t careful, you could end up upside down on your car loan due to depreciation.
  • Ask about voluntary repossession: Voluntary repossession involves asking the dealer to take back your car because you can no longer afford the payments. While this may sound like an ideal solution, it should be viewed as a last resort. It can harm your credit score and make it much more difficult to be approved for financing again in the future.

Since the alternative options above will likely be less than ideal, it’s best to avoid having to return a car whenever possible. Here’s how to buy a car that will suit your needs for the foreseeable future.

  1. Find a reputable dealership: Not all car dealerships are created equal. Make sure the dealership that you intend to work with has a stellar reputation before you start shopping. Read reviews online and check out the Better Business Bureau (BBB) to see its overall rating and any consumer complaints.
  2. Research different makes and models before buying: There are so many options when car shopping that it can be a good idea to research different makes and models before buying. Use websites like Consumer Reports to read about other user experiences and industry guides like Kelley Blue Book (KBB) or Edmunds to get a sense of a car’s value once you’re ready to commit.
  3. Check the car’s condition when buying used: If you’re buying used and you have a specific vehicle in mind, do some digging into the car’s condition before you head to the dealership. You can use used car websites, like Carfax, to access a detailed vehicle history report.
  4. Take it for a test drive: When you’re ready, take the vehicle for a test drive. This will allow you to visually inspect the car and get a sense of how it works. Pay close attention to how the car handles and how you feel sitting in the driver’s seat.
  5. Get it inspected: If you’re happy with the results of your test drive, get the car inspected by an independent third-party mechanic. They will help you find any major problems with the vehicle. If issues do crop up during the inspection, ask the seller to fix them before you take over ownership.
  6. Take your time deciding: Don’t let a dealer’s high-pressure sales tactics get to you. Buying a car is a big decision. Take your time weighing your options and doing the math on your new purchase. No matter how long it takes, make sure you’re content with your decision before moving forward.

Unfortunately, there aren’t many situations where it’s possible to return a car to a dealership. However, there are alternative options available —like selling your car or discussing hardship assistance options with your lender — that can help you get the result you need without needing an acceptable reason for a return.

Whether returning a car will hurt your credit will depend on the method you use to facilitate the return. For instance, if your dealer has a return policy and you return your vehicle during the return window, your credit score should be unaffected. But, if you return your car through voluntary repossession, there will likely be a negative impact.

Yes, it’s possible to trade in your car while you’re still making payments on it, but be aware that going this route will likely increase the total amount that you owe. In this case, you’ll likely be encouraged to roll your existing loan balance into a new auto loan that also covers the cost of the new vehicle.

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