A layoff, illness, unexpected repair, or other financial hardship could easily cause you to not be able to afford your car payment. In many cases, it’s just a short-term setback. But if you’re continuing to struggle with your monthly payments, it might be time to get out of the loan. There are several ways to legitimately end a car loan that doesn’t involve defaulting, which could tank your credit and result in the car being seized by the lender.
- Renegotiate the loan terms
If you’re experiencing financial difficulties, your lender may be willing to change your payment schedule. The earlier you reach out, the better — and lenders are more likely to agree if you have a plan to get back on track. Changing the terms of your loan will typically cost you more in the long run, but it could be helpful if you’re just facing a temporary hardship, like an illness or a missed paycheck.
Your lender may be willing to adjust your payment date or defer one or two payments. The loan will still accrue interest, but it could help you avoid missing more payments or defaulting on your loan, which could wreck your credit score and lead to repossession. According to the Consumer financial protection bureau, some lenders only let borrowers defer the principal on their payment and still require them to pay the interest. If you’ve already fallen behind for several months, a payment plan could help you catch up. It will only give you breathing room, however. You could end up having to make both your regular payments plus a portion of the missed payments. If you’re juggling more than car payments, work with customers with $10,000 or more in unsecured debt. Data Relief doesn’t handle secured debt like auto loans or mortgages, but it can negotiate reduced balances on your credit card bills and other outstanding debts. That can save you money and free up more funds to pay down your car loan.
- Refinance your auto loan
If your circumstances have changed since you initially took out the loan — like your credit score increased — you may qualify for a lower interest rate. Adding to the length of your car loan could also lower payments, though it would mean paying more in interest over time. Make sure you find the best deal from your current lender and other companies. Some lenders offer pre-qualification, which could help you estimate your monthly savings without hurting your credit score. The car loan marketplace Autopay allows borrowers to prequalify online and refinancing loans are available to those with a credit score of only 550. Autopay says its refinancing customers save an average of $105 a month. Loans start at 4.67% APR, considerably lower than the industry average in February 2024.
- Sell the car
Selling your car won’t make your loan disappear, but you can use the money to pay off your balance. Contact your lender to see how much you need to fully satisfy your loan, then look up what your car is worth on a vehicle valuation. Should your car be worth less than the payoff amount (a situation known as an upside-down loan) you’ll need to cover the difference. If you don’t have the cash on hand, you may want to look.
By using non-traditional factors like employment and education to judge creditworthiness, lenders consider borrowers with credit scores as low as 300. And Upstart says a majority of approved loans are funded the next business day.
- Agree to voluntary repossession
If you’re unable to make payments and don’t see your situation changing, a voluntary repossession (sometimes called a surrender) may be your best choice. It will impact your credit score similarly to an involuntary repossession and stay on your credit report for up to seven years. But future lenders may view it a little more favorably when they review your credit history. And you’ll avoid the stress of having your vehicle seized, as well as the fees associated with it. If you agree to a voluntary surrender, you would turn your car over to your lender, who would sell it and put the money towards your payoff amount. You’ll be responsible for any amount the sale doesn’t cover or the balance could go to collections. If your lender forgives the outstanding balance.
- Pay off the loan
If you’re already struggling with monthly car payments, paying off the loan in full might seem like a pipe dream. But it’s a quick way to save on interest, protect your credit score, and reduce your data ratio.
How to get out of a car lease, If you’re struggling, the options are somewhat different.
- Return the car
The simplest way to get out of a car lease is to return the car to the dealer. You’ll have to pay, usually a set dollar amount plus the difference between the balance on your lease and the car’s market value. Be sure to calculate whether the fee would be more than your remaining monthly payments.
- Transfer the lease
If you can’t afford the termination fee, you can also transfer the lease to someone else if the terms of your lease contract permit it.
- Rollover payments
You might be able to roll over your remaining payments into a lease on another car. It will increase your new monthly payments, however, and you could end up paying more than the new car is worth.
· Buy out the lease
Depending on your contract, you may be able to. If the vehicle is worth less than the residual value of what you paid, however, it might not be worth it financially.
