How to Get Out of a Car Loan You Can’t Afford
If you’re looking into how to get out of a car loan, you might feel like you have limited options. Fortunately, there are plenty of ways to solve this problem.
Have a look at the various methods you can use to break up with a car loan for good, as well as the pros and cons that come with each one.
Can you get out of a car loan?
Yes, it is possible to get out of a car loan, but there are only two ways to do it: satisfying the terms of the loan or defaulting on the loan (which can end up with your car being repossessed).
Unfortunately, it’s not possible to just give back a car and end the financing agreement as though it never happened. Plus, every path to getting out of an auto loan will have its own unique pros and cons.
Be sure to do your research into the potential advantages and disadvantages of each route and weigh them as you make your decision.
How to get out of a car loan
Now that you know it’s possible to get out of a car loan, here’s a look at the various ways in which you can make it happen.
Renegotiate your loan terms
If you’re going through a period of temporary financial hardship, such as a job loss or medical situation, your first step should be to contact your lender.
Many lenders offer debt restructuring options that can help you change your loan terms to make them more affordable while you get back on your feet.
Debt restructuring usually comes in one of three forms:
- Payment deferral: Payment deferral lets you temporarily pause payments on your loan. It usually lasts for just a short period of time, and any unmade payments get tacked on to the end of your loan term.
- Loan forbearance: Loan forbearance also allows you to pause payments on your loan. The difference is that your unmade payments usually come due as soon as your forbearance period ends. Your lender may work with you to develop a payment plan to help you catch up and become current.
- Loan modification: Loan modification allows you to change the terms of your existing loan to make it more affordable, such as by cutting the interest rate or extending the repayment timeline.
Not all lenders offer the same debt restructuring programs, so be sure to talk to your lender about which options are 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
If you simply would like a lower loan payment, consider refinancing your auto loan. Refinancing lets you take out a new loan and use the funds to pay off the remaining balance on your existing loan.
This allows you to effectively replace your old loan with a new one that has better terms, such as a lower interest rate.
The biggest advantage of refinancing is that it can help you lower your monthly payment if you qualify for a lower interest rate or are willing to extend your repayment window.
However, the disadvantage is that it may come with an upfront cost. For example, your old loan could come with prepayment penalties, or your new lender could charge an origination fee.
Pay off your auto loan early
If you have the money to pay off the loan early, doing so might be the simplest way to get out of your car loan and save on interest changes.
At the same time, you’ll want to be sure not to drop so much money on paying off your car loan 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:
- Simply requesting the payoff amount from your lender and paying off the loan in full
- Putting a little extra money toward your principal loan balance each month
- Making extra payments on your loan whenever you experience a windfall, like a bonus at work or inheritance
Sell your car
Another way to get out of your car loan is to sell the car. Depending on how much your car is worth, selling the vehicle can help you pay off your car loan in full and potentially even put a little extra cash in your pocket.
However, if you have an upside down car loan — also known as a loan with negative equity — you may not be able to pay off your auto loan just by using funds from the sale. In this case, you may need to kick in money from your savings or even take out a low-interest personal loan to cover the rest of what you owe.
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 or Edmunds 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 your car. If not, you may want to explore other options.
Consider voluntary repossession
Voluntary repossession involves working with the lender to repossess your car and sell it in order to recoup some of what you owe on your auto loan.
While this may sound like a solid option for getting out of a car loan, it can have some serious negative financial effects. For example, taking this step can adversely impact your credit score.
Plus, depending on which state you live in, you may be responsible for paying back any deficiencies, or the difference between the amount you owe on the loan and what your lender makes from the sale of the car.
Default on your car loan (not recommended)
Defaulting on your car loan involves stopping making payments and ignoring all communications from your lender. While it’s an option, it’s not one that’s recommended.
If at all possible, 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 getting forcibly repossessed and having the negative activity from it stay on your credit report for seven years.
Notably, the negative impact on your credit score is greater with a forced repossession than a voluntary one, which can make it even harder to qualify for new financing in the future.
Also, you may still be responsible for paying any deficiencies from a forced repossession — that is, whatever you still owe on the loan after the car is repossessed and sold.
Consider filing for bankruptcy (not recommended)
In the event that you’re underwater on more than just your car loan, you may want to consider filing for bankruptcy. But know that as you consider how to get rid of a car loan legally, this option may be the worst in terms of harming your credit score.
Depending on which type of bankruptcy you file, the process and outcome may look a bit different:
- 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 it lasts on your credit report for seven years.
- Chapter 7 bankruptcy: Chapter 7 bankruptcy involves liquidating your assets to pay off your debts, so you will likely not be able to keep your car. This form of bankruptcy stays on your credit report for 10 years.
Auto loan refinance lenders
| Lender | Starting APR | Loan terms | Loan amounts | |
|---|---|---|---|---|
 | 4.50% | Up to 84 months | Not specified | See Personalized Results |
 | 4.54% | Up to 96 months | From $250 | See Personalized Results |
 | 4.99% | 48 to 96 months | $15,000 to $150,000 | See Personalized Results |
 | 5.29% | 24 to 96 months | $5,000 to $150,000 | See Personalized Results |
 | 5.44% | 36 to 84 months | Up to $150,000 | See Personalized Results |
Frequently asked questions
Yes, it is possible to get out of a car loan. There are several ways to do it, including refinancing your loan, selling your car or considering voluntary repossession. However, each method has its own pros and cons, so be sure to take the time to figure out what works best for you.
You can get out of a car loan without harming your credit, but to do so, you’ll first need to satisfy the terms of your loan. Refinancing the loan, paying it off early and selling your car are all options to get rid of your financing while keeping your credit in good shape.
You’ll still be required to pay off your car loan, even if you no longer want to keep your car. Consider selling or trading in your vehicle as a way to take care of both tasks at one time.