Terminating a car loan can be an uphill battle. Though the Federal Trade Commission has rules that allow a cooling-off period for most contracts, they don't apply to automobiles. Once you've contracted to purchase a car and paid for it with loan proceeds, it can be nearly impossible to return the car, get your money back and terminate the loan. However, with negotiation skills or a willingness to refinance, you may have a chance.
Negotiate release from your contract to buy the vehicle. Contact the dealer who sold the car and tell him you no longer want to the car. Have a good reason and keep your negotiations friendly. Some purchase contracts have clauses that allow you to cancel within a certain period of time. If that period has passed or your contract does not contain such a clause, you will have to convince the seller to let you out of the contract. Some dealers will let you cancel if you just want to purchase a different car, which means you need a new agreement. Others may negotiate a refund that involves a hefty cancellation fee while others will simply refuse. With the purchase agreement canceled, you can have all of the loan money returned to the lender and cancel your loan.
Pay any interest you owe on the loan. Even if you've only had the loan for a short period, you most likely owe some interest. Giving back all the money the lender granted for your vehicle purchase doesn't let you out of the loan. Instead, you have to repay everything you owe, and that includes interest. Contact the lender to learn how much interest you owe and pay it.
Find a person or dealer willing to purchase the vehicle from you. Often, this means taking less for the car than you paid for it and less than your loan amount. In such a case, you will have to pay the balance out of your own pocket in order to repay the loan, including any interest, and terminate your loan contract.
If you are having difficulties with the automobile, you can use those defects as a reason to return it and get out of your loan contract. Research your state's lemon laws via LemonLaw.com (see Resources). If the defect you've uncovered falls under the protection provided by your state's laws, you may have a legal right to return the car and cancel the debt. Likewise, some dealers may automatically allow returns because of defects within a 30-, 60- or 90-day period regardless of your state's lemon laws. The dealer will have to return the money to the lender, and you may have interest to repay.
Refinance into a new car loan if you want to keep the car but don't want the current lending agreement. Often, a refinance makes a good choice if interest rates have decreased since you signed the agreement and you can arrange for lower payments. Even if interest rates have remained the same since you signed for the loan, some refinance lenders may be willing to offer you a better deal, especially if you have good credit.
Default on your car loan if you have no other option for terminating your contract. Keep this as a last resort, as defaulting on your loan means the car will be repossessed and your credit will take a serious hit. The damage to your credit score will make it more difficult to get credit in the future and may translate into higher interest rates when lenders do approve you. In addition, some employers check credit and may not hire you with a default listed on your report.
- If you purchased a car from an individual seller and paid with loan money, you have little chance of getting a refund. In such a case, you will usually have to seek other means of terminating the loan. If the car has a defect, however, you can try suing the seller for a refund.
- Comstock/Comstock/Getty Images