how to get out of a car loan

How To Get Out Of A Car Loan

Purchasing a car is one of the largest financial decisions many people make. With the average new car price approaching $50,000 in 2023, most people need to take out a car loan to afford the purchase. While an auto loan makes owning a vehicle possible, it also creates a long-term financial obligation.

If your financial situation changes after taking out a car loan, you may start looking for ways out of the agreement. While giving back the car seems like an easy solution,

there are many factors to consider when trying to get out of an auto loan. This comprehensive guide covers all of your options, so you can make the best decision for your unique situation.

Understanding Your Car Loan Agreement

Before deciding how to proceed, it’s important to understand the terms of your auto loan. Review all paperwork you received at signing to determine:

  • The total loan amount
  • Interest rate
  • Length of the loan term
  • Monthly payment amount
  • Prepayment penalties
  • Late fees

These key factors provide the framework for getting out of the loan. For example, if you have no prepayment penalties, you may freely pay off the balance early. However, if you’re subject to fees for early payoff, you’ll want to calculate whether it still makes financial sense.

You’ll also want to check on any clauses related to voluntary surrender or repossession of the vehicle. Review all the fine print to understand what actions constitute default so you can avoid fees and other negative consequences if possible.

Understanding Your Car Loan Agreement
Understanding Your Car Loan Agreement

Evaluate Why You Want Out of the Loan

Taking a close look at what’s driving your desire to end the auto loan can help guide your actions. Ask yourself these questions:

  • Is the monthly payment no longer affordable due to job loss or other income disruption?
  • Did you purchase more car than you need?
  • Are high interest rates causing the payment to be too high?
  • Do you need to downsize your lifestyle to get finances back on track?

Once you identify the root cause, you can start to explore options that address the specific problem. For example, if you bought too much car, trading it in for a less expensive option may be the solution. Refinancing could help if the main issue is high interest.

Determine How Much You Owe

Before deciding how to proceed, you need to know your current loan balance. This is the payoff amount you would need to satisfy the loan and get the title to your car free and clear.

The simplest way to get this information is contacting your lender directly. Let them know you are exploring your options and want to find out your outstanding payoff amount and any potential penalties.

You can also refer to recent account statements to view principal balances. But keep in mind interest accrues daily, so your total payoff today likely differs from statement balances. Avoid surprises by getting the most up-to-date total from the lender.

Determine How Much You Owe
Determine How Much You Owe

Calculate the Car’s Value

In addition to what you owe, you also need to know what the vehicle is currently worth. Its trade-in and private party values establish what you could reasonably expect to receive if you opted to sell the car.

Online valuation tools like Kelley Blue Book (KBB) make it easy to input your vehicle details and get estimates based on condition, features, mileage and location. Private party value assumes selling directly to an individual, which typically yields more money than trading in at a dealership.

In addition to the high-level estimates, also determine the demand for your particular vehicle if you planned to sell it. Reviewing local classified ads and dealer listings for similar vehicles can give you an idea of real-world value.

Compare Owe vs. Value

A key calculation in determining your car loan options is to compare what you currently owe against what you could sell it for.

If the loan balance is less than value, you have positive equity in the vehicle. This gives you flexibility when it comes to getting out of the loan, including selling the car to pay off the loan and even pocketing extra cash.

However, if the balance exceeds the car’s worth, you have negative equity. This means you owe more than you could get for the car, limiting options for exiting the loan unless you can pay the difference.

Knowing where you stand in terms of equity position provides important context for assessing the viability of strategies to get out of your loan.

Compare Owe Vs. Value
Compare Owe vs. Value

Explore Refinancing the Loan

Refinancing replaces your current auto loan with a new one, ideally with better terms. You get the funds from the new loan to pay off the old loan balance. This allows you to keep the car while potentially improving the situation.

Refinancing works best if you can secure a lower interest rate, reducing your monthly payments. It also gives you flexibility to adjust the loan term. Extending to a longer term lowers the payment, while shortening the term can save on interest costs.

Cash-out refinancing is an option if you want to tap equity by replacing your loan with one for a higher amount than what you currently owe. The cash pays off the old loan, while excess money goes to you. This adds to your total debt but gives access to cash.

Before pursuing refinancing, make sure you understand any prepayment penalties with your current lender. Paying off the loan early could trigger fees. Also research new lenders to find the best rates and terms for your situation. Your credit score is a key factor in qualifying for refinancing.


  • Lower interest rate reduces monthly payments
  • Adjust length of loan term
  • Access cash if equity allows cash-out refi


  • Prepayment penalties may apply with current lender
  • Closing costs for new loan
  • Need to qualify based on credit and income

Trade In the Car

Trading in your car is a relatively quick way to get out of your loan. It works best if you have positive equity or a very small amount of negative equity. Here’s a look at the trade-in process:

  • Shop dealers to compare trade offers on your vehicle
  • Test drive and select a less expensive replacement vehicle
  • Complete financing application for new purchase
  • Dealer appraises trade-in and applies value to new deal
  • You sign paperwork and drive home in new car

The dealer essentially buys your trade at wholesale value. They apply that amount toward the new purchase, rolling any leftover balance owed on the old loan into the new auto financing.

Trade-ins eliminate the need to sell privately and coordinate paying off the old loan. But you accept a lower value for your car. Consider whether the convenience outweighs leaving equity on the table.

Trade In The Car
Trade In the Car


  • Fast way to transition into new car
  • Allows rolling negative equity into new loan
  • Avoids used car sale process


  • Wholesale value less than private party sale
  • Risk of increasing total debt with rolled-over negative equity

Sell the Car Yourself

Selling your car outside of a trade-in involves more time and effort, but puts cash from the sale directly in your hands. If you have positive equity, you can pay off your loan and potentially have money leftover.

Private party sales generate the highest returns, but require more coordination. Steps include:

  • Determine realistic asking price based on market comparables
  • Advertise vehicle for sale on online platforms
  • Meet prospective buyers for test drives
  • Receive payment once buyer is secured
  • Pay off auto loan balance from sale proceeds

Look at prices for similar vehicles listed locally when pricing your car. Set the asking price somewhat above what you actually want to account for negotiations. Thoroughly describe your vehicle’s features, condition and maintenance history in listings to attract buyers.

Meeting at a public place for test drives protects all involved. Never hand over car or title without full payment in cash or cleared electronic funds.


  • Maximize sale proceeds
  • Income from sale if equity exists
  • Avoid all trade-in disadvantages


  • More effort to coordinate sale
  • Potential safety risks with test drives/payments
  • No flexibility with negative equity
Sell The Car Yourself
Sell the Car Yourself

Voluntary Repossession

You can proactively initiate repossession by contacting your lender to surrender the vehicle. The lender will arrange pickup or ask you to drop off the car at a designated location. This is known as voluntary repossession or voluntary surrender.

It provides a structured approach to turning in the car if you can no longer afford payments or don’t see any options for selling it yourself. Make sure you get written confirmation of return from the lender, along with release of any personal items left in the car.

Even with voluntary repossession, you are still responsible for the remaining loan deficiency. The lender sells the car at auction and requires payment for any balance leftover after the sale. Your credit is also dinged with severe negative reporting.


  • Structured process for turning in car
  • Releases you from making further payments


  • Major damage to credit history
  • Still liable for loan deficiency balance
  • Lose equity if car sells below balance

Default on the Loan

Defaulting on your auto loan occurs if you stop making payments without turning in the vehicle or coordinating other options with the lender. This usually happens because you can no longer afford payments but take no action to address the situation.

Once in default, the lender can pursue repossession with court order. They may hire a

Consequences of Defaulting on an Auto Loan

The lender can repossess your car. They may show up unannounced at your home or work to take the vehicle. Your credit score will take a major hit. Missed payments can stay on your credit report for up to 7 years. This makes it harder to get approved for future loans and credit cards.

You may owe additional fees for late payments, collection costs, legal fees, and storage fees if the vehicle is repossessed. This increases the total amount you’ll have to pay. Some employers check credit, so defaulting could impact your job prospects.

Any remaining loan balance after the lender auctions the vehicle becomes deficiency balance that you still owe. The lender can take legal action to recoup this amount. Future car loan terms will be less favorable due to damaged credit, including higher interest rates and larger down payments required.

Consequences Of Defaulting On An Auto Loan

Refinancing an Auto Loan

Research current interest rates and lenders to find potential savings. Online lenders sometimes offer lower rates than dealerships. Check your credit score so you know the rate ranges you may qualify for. Lenders disclose loan terms without a hard credit pull.

Calculate potential monthly payment and interest savings from refinancing options. Include any refinancing fees. Submit a loan application with your preferred lender and provide required documentation.

Wait for loan approval and review all terms before accepting new loan. There may be prepayment penalties from your current lender. New lender pays off old loan balance directly. You begin making payments on the new, lower-rate auto loan.

Determining Your Car’s Trade-In Value

Research the current retail and trade-in values on sites like Kelley Blue Book and Edmunds. Com. Adjust values based on mileage and condition. Check prices for similar vehicles listed at local dealerships to compare real-world values in your market.

Review offers from online buying sites like Carvana and Vroom for more trade-in data points. Get quotes from multiple dealers. Ask each dealer to appraise your vehicle so you can compare offers. Negotiate! Start lower and show data on higher market values to justify asking for more on your trade.

Getting an accurate trade-in value helps you calculate potential equity and determines how much negative equity you may need to roll into a replacement vehicle loan. With multiple quotes, aim for the highest reasonable offer.

Determining Your Car's Trade-In Value
Determining Your Car’s Trade-In Value


Is there a way to get out of my car loan?

There are a few options to get out of a car loan, but all will have some impact on your finances and credit. You can sell the car and use the proceeds to pay off the loan balance, but you may owe more than it’s worth. Trading it in when buying another car can help eliminate negative equity. Refinancing the loan may lower payments but will extend the loan term. Filing bankruptcy would eliminate the debt but severely damage your credit. Overall, it’s very difficult to get out of a car loan without continuing to pay it off or damaging your credit.

How can I get out of a car loan without destroying my credit?

The best way to get out of a car loan without hurting your credit is to continue making the monthly payments in full and on time. This shows lenders you can responsibly manage debt. Another option is to sell the car for enough to pay off the loan balance completely. You can also trade it in toward another car and roll any negative equity into the new loan. Refinancing may lower payments but extends the loan. Defaulting on the loan can lead to repossession and collections which devastate your credit. Avoid shortcuts like voluntarily surrendering the car.

What happens if I don’t want my financed car anymore?

If you no longer want a car you’re financing but are current on payments, you have a few options. Selling the car or trading it in can eliminate the loan if you get enough to pay it off. Otherwise any negative equity rolls into a new loan. You may be able to refinance the loan to lower payments but will owe longer. Defaulting leads to repossession, collections and credit damage. Voluntary surrender avoids repossession but still hurts credit and leaves you owing the balance. Keeping and continuing to pay the loan is best for your credit if you can afford the payments.


Getting out of a car loan without damaging your credit or finances can be very difficult. The best options are to continue making payments in full and on time to show lenders you can responsibly manage debt. Alternatively, you can sell the car or trade it in to eliminate the loan,

but only if you can get enough money to pay off the remaining balance. Refinancing may help lower payments but will extend the loan term. Defaulting leads to repossession, collections calls, and severe credit damage that can take years to recover from.

While it may be tempting to voluntarily surrender the car, this still impacts your credit and leaves you owing the balance. Overall, there are very few good ways to get out of a car loan completely without consequences. Proceeding carefully is key to limiting the damage to your credit and finances.

Related posts

Leave a Comment