Buying a car is an exciting milestone in every person’s life. Most people prefer to buy their first car by borrowing money from a lender. This is called a car loan or an auto loan. Lenders specify the repayment terms and you agree to repay the loan in full, along with any interest.
But what happens if your financial situation changes after a few years and you’re no longer unable to finance the car loan? In this article, you’ll learn how to get out of a car loan. It can be difficult, but it’s not impossible.
Here are 4 ways you can get out of the loan:
Refinancing means taking out another loan with better repayment terms to pay off the current one. The new loan might have a higher interest rate but you’d be able to repay it over a longer period of time.
Keep in mind that the lender could refuse to renegotiate. It mostly depends on your credit score and whether you’ve been making the previous payments on time. This is why it’s important to maintain a strong credit score (usually above 700).
2. Selling the Car
If you’re no longer able to afford the car and are having trouble repaying the loan, you can sell it. You’ll have to ask the lender first since you’re currently not the owner of the vehicle.
Once you have their approval, you can easily sell the car to anyone you want. After selling the vehicle, use the money to pay off the loan. Note that you won’t always be able to sell it for a price that’s equal to the outstanding loan, so it’s important to do your research and see how much you’ll get for it before talking to the lender.
You can also choose to trade in your vehicle, but you’ll get less money this way. The good thing is that it’s much faster and more convenient than selling.
3. Renegotiate the Loan
If the current terms of your car loan are no longer favorable, then you can reach out to the lender and see if they’re willing to renegotiate them. But before you speak to them, make sure you fully understand your financial situation, so you can come up with a plan that better aligns with it than the current one.
You may be able to get lower interest rates or longer repayment terms, but it mostly depends on your credit score and whether you’ve been paying off the loan on time.
Make sure there’s no publicly available information about you that can hurt your chances of renegotiating or refinancing the loan. Public record search sites, such as this one, can help you with this.
4. Raise the Principal Amount Every Month
This may sound counterintuitive if you’re already struggling to pay off the loan, but it can actually make it easier. By paying more each month, you’ll end up paying less interest and the term of your loan will shorten.
It’ll also improve your credit score, increasing your chances of refinancing or renegotiating the terms of your current car loan. It’ll also improve your Debt-to-Income (DTI) ratio.
Just make sure you talk to the lender first to make sure there are no prepayment penalties.
5. Voluntarily Surrender the Vehicle
If you default on the loan, the vehicle will be repossessed and that will damage your credit score. This will make it harder for you to get a loan in the future. Instead, what you can do is voluntarily surrender the car to the lender.
It’s not the best option, but it’s much better than having the vehicle repossessed. Once the car has been sold at an auction, you’ll have to pay the difference between the outstanding loan and the sale price. But keep in mind that voluntary surrender will also hurt your credit score and make it harder to get another loan in the future.
Get Rid of a Car Loan You Can’t Afford
Getting out of a car loan can be challenging, but using the methods mentioned above, it is possible to navigate through it without much trouble. As long as you take care of your credit score and have been paying back the loan on time, renegotiating or refinancing the repayment terms shouldn’t be a problem.
If nothing works, your last option is to voluntarily surrender your car, but this can hurt your credit score, so only consider it if there’s nothing else you can do.