Getting a car loan is relatively easy. Lots of lenders will work with you even if you have less than spectacular credit. Getting out of a car loan, though, is a bit more complicated, as there is no simple way to end your loan. A car loan is a legally binding contract with your car as collateral.
In most cases, to terminate a car loan, you need to find a way to pay the loan. There are several options for getting your loan paid off.
TL;DR (Too Long; Didn't Read)
Options for terminating a car loan include returning the car, selling it or surrendering it voluntarily.
Returning the Car
If you’ve just purchased the car, you may be able to return it to the dealer. The purchase needs to be very recent, and you need to contact the dealer immediately. The dealer is not obligated to take back the car, but they may be more amenable to taking back the car if you want to go with a less expensive model. That way, they still get a sale.
To return your car, start by contacting the salesperson who sold you the car. You may need to speak to their manager or the owner of the dealership. Calmly make your case for why you’d like to return the vehicle.
In some instances, the dealership may have a return policy. Make sure you follow the policy and return the car within the time allowed.
Selling the Car
The simplest way to end a car loan is to sell the car and use the proceeds to pay off the loan. Of course, this only works if your car is worth as much, or more, than the balance of your loan. If you sell the car and get less than the loan balance, you will still need to pay off the remainder of your car loan.
To determine the value of your car, do some online research. If possible, you’ll want to sell the car directly to another individual, as you’ll get more money; some may be hesitant to purchase a car when they may have to wait for the title. To sell a car you have an outstanding loan on, contact your lender for information on how to proceed with the sale. You may be able to pay off the loan and transfer ownership at the same time.
You can also sell the car to a dealer. You may not get as much for the vehicle, but they are used to dealing with loans and titles. Contact multiple dealers to see where you’ll get the best price for your vehicle.
Surrendering Your Car Voluntarily
A voluntary repossession should be your last resort. Even though it’s voluntary, the repossession will still have a negative impact on your credit score. With a voluntary repossession, you surrender your vehicle to your lender. They sell the car at auction and use the money to pay the balance on your loan.
If your car doesn’t sell for enough to cover the loan, you are responsible for paying the balance. If you have trouble paying the balance, the account may be sent to collections, which also hurts your credit. If you still owe a balance after a voluntary repossession, contact the lender to make payment arrangements.
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Tips
- 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.
Writer Bio
Melinda Hill Sineriz is a freelance writer with over a decade of experience. Her work has appeared on Pocket Sense and Sapling. She specializes in business, personal finance, and career writing. She has worked in insurance sales and financial planning, helping families to manage their money and prepare for the future. Learn more about her and her work at thatmelinda.com.