Can You Negotiate a Car Payoff Balance?

If you want to pay off your car loan early or you’re looking to pay less than the full balance, negotiating with your lender could be an option. Some lenders may even be willing to accept one lump sum payment for less than the full balance you owe. Others, however, have strict policies against negotiating payoffs.

Whether your goal is to avoid vehicle repossession or reduce your losses after totaling your car, these are our tips for deciding when and how to negotiate a car payoff settlement.

How to negotiate a car payoff settlement

There’s no guarantee that you’ll be able to negotiate a settlement on your car loan, but following these steps can help improve your odds, save you money and reduce the potential damage to your credit.

1. Keep making your payments 

Even if your car is totaled or has already been sold, you’re still contractually responsible for making your loan payments as agreed. In fact, missing just one payment on a loan can cause major damage to your credit score, result in late fees and interest charges from the lender and may discourage your lender from negotiating with you.

2. Find out what you owe

Between monthly payments and interest charges, your loan balance is always shifting. Before making an offer, make sure you locate your most up-to-date balance and weigh whether a payoff is affordable. Check out our pointers on how much to offer below.

You can find your loan balance by logging into your online account, by viewing your most recent bill or by contacting your lender. Some lenders may even offer a 10-day payoff quote, which tells you exactly how much it would cost to pay off your full balance within the next 10 days.

3. Look at the big picture

Settling an auto loan can have serious financial and credit ramifications, but depending on your situation, it could be worth the consequences. Here are some questions to ask yourself before contacting your lender:

Can you afford a settlement?

Paying your debt off early is only advisable if your financial situation is stable. If paying off your car loan would mean depleting your emergency savings or jeopardizing your ability to cover necessities (like rent, utilities, food or medical care), it’s best to hold on to your cash.

If you’re considering a car loan payoff as a solution for serious financial trouble, consider speaking with a nonprofit credit counselor who can help you explore all available solutions, including a debt management plan or bankruptcy first.

Is loan payoff the best use of your money?

If you have other debts with higher interest rates — which is often the case for consumers with credit card debt — you stand to save more by paying down those other balances first. On the other hand, if a payoff is the only way to avoid repossession or missing future car payments, negotiating a settlement could be a good use of your money.

How will it impact your credit?

Settling a loan can affect your credit in a few different ways, so it’s impossible to predict exactly how your credit scores will be impacted.

For one, reducing your debt-to-income ratio can improve your credit scores. Avoiding missed payments can also help you prevent major damage to your scores. But if the car loan is your only active loan, closing it could also result in a loss of some points.

Your reports will also show that you paid less than the full loan amount when you settle, which can make future lenders hesitant to work with you.

Does your lender negotiate payoffs?

Your lender probably has policies about when and how they’ll negotiate payoffs, including how much they need to collect and whether there’s a prepayment penalty. Research your lender’s policies and be sure to review your contract to see if there are stipulations related to payoffs.

4. Talk to your lender

If you’ve decided to negotiate, you’ll need to contact your lender. When you reach out, keep these pointers in mind to help you reach the best deal:

Say you want to avoid repossession

Believe it or not, auto lenders actually want to avoid repossessing vehicles. The process can be complex and costly for all parties involved, so be sure to let your lender know that negotiating is your way of trying to avoid this negative outcome.

Offer the wholesale value of the car

The wholesale value of your car is what it would be worth if it was sold at a used car auction. This is likely the amount the lender would get for the car after repossession, minus fees and labor.

Depending on the condition, the auction value could be a few thousand dollars less than the retail value of your car. If your car is in poor condition and therefore less valuable at auction, referencing the wholesale price estimate could also help you negotiate a lower settlement amount.

Don’t agree to more than you can afford

Make sure you’re very clear on what you can afford to pay. If you do come to an agreement and then fail to keep up your end of the deal, the lender may refuse to offer you any further flexibility and could even fast-track your vehicle for repossession.

Tell them you’re considering bankruptcy

Filing bankruptcy can prevent a lender from repossessing your vehicle and can even stop them from attempting to collect more money from you. By comparison, settling could be a much more attractive option for the lender.

Although bankruptcy can wipe out some debts, it also has a major impact on your credit score. It can be a useful tool for borrowers in dire financial straits, but should be your last resort option. If you are considering bankruptcy, or even if you’re just working with a credit counselor, make sure your lender knows what measures you’re taking to resolve your situation.

Be polite

Attempting to negotiate a payoff can be stressful. If you feel frustrated or angry, remember not to take it out on the person who could offer you help. If you find yourself getting nowhere with negotiations, collect yourself and call back to speak to a different agent, or politely ask if you can speak to a supervisor. You’ll catch more bees with honey in this situation.

5. Get everything in writing

Paying off your loan balance can involve handing over a large sum of money. The last thing you want is for the lender to accept your payment and continue sending you a bill. Eliminate that risk by getting everything in writing, even if it’s just via email.

Make sure the lender confirms the correct settlement amount and the fact that it will be accepted as “payment in full” for your remaining loan balance. You should also record the name and direct contact information of the representative you spoke with.

Downsides to negotiating a car payoff balance

Having debt dismissed can have some significant downsides. You might experience any or all of the following after paying off your debt:

• Lender fees. Some lenders charge prepayment penalties, or fees for early repayment of your balance.
• Credit damage. The record of your settled debts will stay on your credit reports for seven to 10 years, and future lenders may see the settlement as a sign of inability to manage loans or pay debt.
• Tax consequences. Canceled debt can be considered taxable income by the IRS. If you have $600 or more forgiven by a lender, you may receive a 1099-C from the lender and have to pay taxes on the canceled debt.

Alternatives to negotiating a car payoff balance

If the lender is not willing to negotiate, if you can’t afford their payment terms, or if you simply decide that a payoff is not the right option for you, you still have other options for managing your auto debt.

Get a personal loan

A personal loan could provide you with the funds you need to pay off your car loan and even help you pay less each month overall. The downside is that personal loans generally have higher interest rates than car loans, since they are not backed by collateral, and your credit rating will determine what you qualify for.

Use a credit card

If your auto loan payoff balance is small, using a credit card to cover the amount could be a short-term solution. Someone with excellent credit could even try using a 0% APR credit card for the transaction. Just beware of charging large expenses with credit, since most credit cards have far higher interest rates than loans.

Refinance your auto loan

If you want to keep your vehicle, you could apply for an auto refinance loan. Auto refinancing could help you get a more affordable payment or lower interest rates, especially if your credit has improved since you took out your original loan.

Modify your loan

Paying off your full car loan might not be doable, but many lenders have other options for borrowers who need help. These options could include setting up a more affordable payment arrangement, especially if you’re experiencing a hardship like unemployment or a medical emergency.

Car payoff settlement: FAQ

Can I negotiate a payoff amount?

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.

Why is my car payoff more than my balance?

Cars tend to lose value quickly, especially when they’re brand new. In fact, they often lose value much faster than an owner can pay down their loan balance. For this reason, it’s common for a car to be “underwater,” or to be worth less than the balance owed on the loan.

Is it smart to pay off a car loan early?

If you can pay off your car loan early without experiencing any financial instability or being charged lender fees, it’s worth considering. Paying the loan off early can save you money in interest charges, however you could potentially save more by paying off higher interest debt first.