How to Get Out of a Car Loan Without Ruining Your Credit

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Bethany Hickey is a Content Manager and Writer for Auto Credit Express, CarsDirect, and many other automotive blogs. She's a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. 

, Content Manager - June 2, 2021

Getting out of a car loan isn’t as easy as returning it to the dealer and saying, “Nevermind!” Here are some ways to effectively get out of an auto loan you no longer want or need.

Getting Out of an Auto Loan

There are a few different ways to get out of an auto loan you no longer want. If you want to protect yourself and credit, though, you need to avoid default and repossession.

If you return the vehicle to the dealership because you no longer want to pay on the car loan, it’s classified as a voluntary repossession – which impacts your credit like a traditional repo and can be devastating to your credit score. A repossession can also make it difficult to qualify for an auto loan for at least 12 months with many lenders since most don’t approve borrowers that have a repo on their credit reports that’s less than a year old.

However, if you just stop paying on the car loan because you can’t or don’t want to and don't return the vehicle, the missed and late payments can lead to repossession and massive damage to your credit reports.

If you want out of an auto and want to avoid ruining your credit in the process, here are three suggestions to consider:

  1. Refinance – If you want to keep your current car, but want a different auto loan, then refinancing is the way to go. Refinancing is replacing your current car loan with another one. Your current loan is paid off and replaced with a new loan, and if your credit score is better than it was when you originally financed the vehicle, then you may be eligible for more favorable terms such as a lower interest rate. Many borrowers refinance to get a lower monthly payment, and often, look for another lender to refinance with.
  2. Trade-in or sell the car – To get out of an auto loan contract without ruining your credit, you could sell the vehicle and use the proceeds to pay off your lender. Used car values are high right now, due to a global chip shortage, and many borrowers are seeing higher offers for their used vehicles. If you’re looking for another car loan and want out of your current one, then trading in your vehicle at a dealership for something else could be your solution.
  3. Roll over the loan – If you owe more on your auto loan than what you could feasibly sell the car for, called being in a negative equity position or being underwater on your loan, then rolling over the negative equity onto your next auto loan may be an option. Rolling over your negative equity onto your next loan could mean a large balance, but if you can’t pay off your lender with sale proceeds or pay the loan balance out of pocket, then this may be a worthwhile option to explore.

For many borrowers, refinancing is a great money-saving option, which gets them out of their current car loan without having to sell the vehicle at the same time. Since refinancing offers a chance to lower your interest rate and monthly payment, it’s an option many borrowers with both good and bad credit alike flock to. To learn more about refinancing and its requirements, click here.

A Loan Deferment Could Help, Too

If you’re simply struggling to make payments right now due to financial hardship, then it may be time to talk to your lender before you start missing payments.

Many auto lenders are willing to assist borrowers in the event of job loss, medical emergency, or other circumstances where they’re struggling to make ends meet. If this is you, you may qualify for a deferment. It can pause your payments for a few months and could help you get back on your feet. Many lenders require a hardship letter outlining why you need a loan deferment and only allow deferment for around 30 to 90 days. Not every lender offers this assistance – but the worst that can happen is they say no!

You may be surprised to learn that lenders typically want to avoid default and repossession, possibly as much as you do. Recovery efforts take up a lot of time and energy for lenders, and often, they lose money during the process.

At the first sign of hardship, contact your lender to keep them in the loop. If you contact them before a missed payment, it's more likely they may be able to assist you. A deferment could help you protect your credit score since you’d have the ability to stay current on the loan without having to make payments for a little while.

Trading In the Option for You?

If selling your vehicle for something else is the route you need to take, then let us be your guide. Here at CarsDirect, we’ve cultivated a coast-to-coast network of dealerships that assist borrowers in unique credit circumstances, and we want to get you connected.

After you complete our free auto loan request form, we’ll look for a dealer in your local area with bad credit lending resources. Get started today!


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, Content Manager

Bethany Hickey is a Content Manager and Writer for Auto Credit Express, CarsDirect, and many other automotive blogs. She's a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. 

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