How to Get Out of a Car Loan You Can’t Afford
If you’re looking to get out of a car loan, you might feel a bit stuck. Fortunately, there are a few ways to get unstuck. Although you can’t turn back time and give the car back, here’s how you can get out of a car loan for good.
- You can get out of a current car loan by refinancing, selling your car or requesting a voluntary repossession, among a few other strategies.
- You could request a loan modification that could make your current car loan easier to afford.
- Contact your lender at the first sign of financial trouble to discuss your options.
Can you get out of a car loan?
Yes, you can get out of an auto loan, but you either need to satisfy the terms of the loan or default on the loan. The lender can repossess your car if you default. Plus, your credit score will take a giant hit. Satisfying the terms of the loan is your best choice.
Ways to escape your car loan
Now that you know that it’s possible to get from under a car loan, here are a few strategies to help make it happen.
Renegotiate your loan terms
If you’re having trouble keeping up with your payments, call your lender at the first sign of trouble.
Some have special programs for people who have lost their job or are facing a serious medical issue. Or, your lender might simply be willing to restructure your debt in a way that makes your car loan easier to afford.
- Permanent due date change: If you’re struggling to line up your payday with your car loan payment, you could ask for a change in due date. If you move your payment date forward, your next payment might be higher than usual. Most auto loans accrue interest daily, so extra days in your billing cycle mean more interest for that month.
- Payment deferral: Payment deferral lets you put a temporary pause on your payments, usually just for a month or two. The payments you skip are tacked onto the end of your loan, and your loan continues to accrue interest while your payments are paused.
- Loan modification: Your lender might let you extend your loan term. This will reduce your monthly payments but increase your total interest. In some cases, your lender might even lower your interest rate if you ask.
Not all lenders offer the same debt restructuring programs. Talk to yours to see which options may be available to you.
For best results, be prepared to explain why you’re experiencing hardship, how long you think it will last and how much you can currently afford to pay toward your car loan.
Refinance your car loan
One of the best ways to get out of a bad car loan is by refinancing. When you refinance your car, you’ll take out a new loan (a refinance loan) and use it to pay off your current loan.
If you’ve improved your credit score since buying your car, you might qualify for a lower rate on a refi loan. Refinancing to get a longer loan term (and a lower monthly payment) is also common. Just know that you’ll pay more interest over the life of your loan by doing so.
Auto refinancing can come with extra costs. If your current auto loan has a prepayment penalty, it will probably apply when you refinance. Some auto refi loans also come with document fees. Lenders typically roll these into your refi loan, where they will accrue interest.
Auto refinance lenders
| Lender | Starting APR | Loan terms | Loan amounts | Minimum credit score | |
|---|---|---|---|---|---|
 | 4.39% | 24 to 84 months | $10,000 – $100,000 | 580 | |
 | 5.49% | 12 to 96 months | $5,000 – $150,000 | 560 | |
 | 5.49% | 36 to 84 months | $7,500 – $100,000 | 460 | |
 | 4.49% | 24 to 96 months | $5,000 – $150,000 | 500 | |
 | 3.50% | 12 to 84 months | Up to $100,000 | 600 |
Sell your car
Another way to get out of your car loan is to sell your car. Depending on how much the car is worth, you might be able to pay off some or all of your car loan. If you’re really lucky and your car has gone up in value, you might even get to pocket some extra cash.
To figure out if selling your car makes sense, start by contacting your lender to get the payoff amount. Then, use industry guides like Kelley Blue Book to determine your car’s value in the current market.
If your car is worth more than the total payoff amount, there’s a good chance it could be worth selling. If not, you may want to explore other options.
If you check Kelley Blue Book and realize that you owe more than what your car is worth, you have an upside-down car loan. This is also called having negative equity.
In this case, you’ll likely have a balance on your car loan even after selling your car. You can either pay this out of pocket, get a personal loan to cover the difference or, in some cases, roll the leftover balance into a refinance loan.
Pay off your auto loan early
If you can’t afford your monthly car payments but have extra funds for a lump sum, you could consider paying off your car loan early. However, don’t drop so much money that you’re unable to keep up with other goals, like building an emergency fund or buying a home.
While financial situations can vary, there are generally a few ways to go about paying off a car loan early, including:
- Requesting the payoff amount from your lender and paying off the loan in full
- Putting extra payments toward your principal balance each month
- Making extra payments on your loan whenever you experience a windfall, like a bonus at work or an inheritance
Request a voluntary repossession
You could return the car to your lender as a voluntary repossession. Once you give the car back, the lender will sell it to recoup some of its losses.
While this may sound like a solid option for getting out of a car loan, it can have some serious negative financial effects. You may be responsible for paying back any deficiencies or the remaining balance left on the loan after the lender sells the car.
And whether it’s voluntary or not, repossessions show on your credit report for up to seven years. However, a voluntary repossession shows that you tried to work with your creditors, so a future lender might look at it more favorably than if it were involuntary.
Consider filing for bankruptcy
If you’re underwater on more than just your car loan, you may want to consider filing for bankruptcy. This option may be the worst in terms of harming your credit score, but it can provide a fresh start for those who truly need it.
The process and outcomes differ depending on the type of bankruptcy you file:
- Chapter 13 bankruptcy: Chapter 13 bankruptcy may allow you to keep your car and other assets. It involves following a court-approved payment plan to pay off your debts and remains on your credit report for seven years.
- Chapter 7 bankruptcy: Chapter 7 bankruptcy involves liquidating your assets to repay debts. You may be able to keep your car, but your car loan lender will need to agree, and you’ll have to continue making payments. This form of bankruptcy stays on your credit report for 10 years.
Default on your car loan (not recommended)
Defaulting on your car loan involves stopping payments and ignoring communications from your lender. It’s an option, but we don’t recommend it. It’s a much better idea to work out an alternative payoff method with your lender before it gets to this point.
Going this route ends with your car being forcibly repossessed, and the repossession will show on your credit report for up to seven years. And, as mentioned, the negative impact on your credit score is greater with a forced repossession than a voluntary one.
If you let your lender repossess the car, you’ll probably pay more fees than if you gave it up on your own. You may also still be responsible for paying the remaining loan balance if you still owe once the car is sold.
Frequently asked questions
You could get out of your current car loan by refinancing, selling your car or by giving it back to your lender as a voluntary repossession. Voluntarily repossessions negatively impact your credit score for up to seven years. Refinancing or selling it might be your best options.
No, car loan lenders won’t typically forgive your debt. But they may have financial hardship programs that can help get you back on track if you’re falling behind.
You might be able to defer (or pause) your payments. Some may even allow you to modify your loan by extending your term. This will give you a lower monthly payment, but you will pay more total interest.
You can walk away from a car loan, but not without consequences. If you walk away from your loan, the lender will consider your loan in default and it will repossess your car. This will be disastrous for your credit score and could stop you from buying a car in the future.
Instead of walking away, consider refinancing or at the very least, giving the car up voluntarily. Although this will still hurt your credit, lenders tend to look more kindly at voluntary repossessions. A voluntary repossession also typically comes with fewer fees than a forced one.
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