Can You Return a Financed Car Without Penalty?

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.

Can you return a financed car without penalty?

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.

4 times when it’s possible to return a financed car

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 30 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.

2 times when it’s not possible to return a financed car

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).

Alternatives to returning a financed car to the dealer

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:

• 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.

Car-buying tips: 6 strategies to help avoid returning a car

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.