What if I Don't Use an Approved Bad Credit Car Loan?

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Contributing Writer

Bethany Hickey is a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. She is a content writer for Auto Credit Express, CarsDirect, and many other automotive blogs, as well as the Poetry Editor for UM-Flint’s writing magazine.


, Contributing Writer - August 17, 2021

The good news is that nothing happens if you decide to not use a loan that you were approved for, including a bad credit auto loan.

Bad Credit Auto Loan Approvals

If you’re approved for a bad credit car loan and decide that you don’t want to use it, you can walk away with no strings attached. You can simply tell the lender that you don’t want to use the loan – as long as you haven’t signed the loan agreement or buyer’s order, or taken delivery of a vehicle.

The only negative impact that you may experience after declining an auto loan is the hard pull on your credit reports. When you apply for new credit and the lender pulls your credit reports, it’s reported, and temporarily impacts your credit score for up to 12 months.

Typically, a hard pull can lower your credit score by around five to 20 points, depending on your current credit rating. If you don't accept a loan offer, there’s nothing else reported on your credit reports besides the initial hard inquiry.

Other than the impact of the hard pull, you can walk away from a bad credit auto loan approval if you decide it isn’t for you. However, once you sign any part of the loan agreement, things can get complicated if you decide you don’t actually want the loan.

Once you sign the loan agreement with the lender, it’s legally binding. To get out of a car loan – bad credit or otherwise – you have to pay off the loan in one way or another. However, this doesn’t necessarily mean you have to finish the loan naturally by making all the payments over the allotted loan term.

Getting Out of a Bad Credit Auto Loan

If you signed and agreed to a bad credit car loan offer and decided later that you no longer want the loan, then you typically have four main options to explore:

  • Complete the loan – This can mean paying off the loan naturally with installments until you’ve paid everything you owe, or paying it in one or more lump sums. Most car loans don’t come with prepayment penalties, but it doesn’t hurt to check with your lender.
  • Refinance the vehicle – Refinancing is substituting your auto loan for another one on the same car. If you’re eligible for refinancing, the lender pays off your old loan and you begin a new one. Most borrowers refinance with a new lender to get a lower monthly payment. There are refinancing requirements to be aware of, too.
  • Sell the car – If you can sell your car for enough to pay off the loan, it ends the agreement. This can get tricky if you’re in a negative equity position, where you owe more on the can than it’s worth.
  • Voluntary surrender – This is a last resort, which involves surrendering the vehicle and defaulting on the loan. Also known as a voluntary repossession, this is reported on your credit reports. Doing this still leaves you responsible for anything you owe until the lender sells the car at auction. The proceeds from the sale go to repaying the remaining loan balance. If there’s anything leftover, called a deficiency balance, you’re still obligated to pay it.

If you need to get out of a vehicle and the bad credit auto loan you used to buy it, but you’re in a negative equity position, you may be able to roll over your negative equity when you trade in.

Bad Credit Auto Loan Connections

Finding a dealership that has bad credit lending resources can be easier with us at CarsDirect. We’ve created a coast-to-coast network of special finance dealerships that are signed up with subprime lenders, and they’re equipped to assist with many unique credit challenges. Fill out our free auto loan request form, and we’ll get right to work looking for a dealer in your local area.

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, Contributing Writer

Bethany Hickey is a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. She is a content writer for Auto Credit Express, CarsDirect, and many other automotive blogs, as well as the Poetry Editor for UM-Flint’s writing magazine.


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