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How to get out of an auto loan or lease

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An auto loan or lease is a great way to get behind the wheel of a vehicle without having to break the bank. But if you find yourself in a circumstance where you can no longer afford your monthly payments, or are possibly on the verge of becoming upside down on your loan, there are ways out.

Consider how renegotiating, refinancing or selling your vehicle may be beneficial — and if voluntary repossession is a better option than default.

5 options to get out of a loan you can’t afford

There are a few ways you can exit if the loan no longer fits your budget. But you’ll need to tread carefully if you want to minimize the hits to your wallet and your credit rating.

1. Renegotiate the loan

You can reach out to your lender and negotiate a new payment plan. This is an especially good option if you have good credit and payment histories and only need temporary assistance to catch up due to unforeseen circumstances.

It is possible to give yourself some extra time by deferring payments or even stretching out your loan term — but keep in mind the longer the term, the more interest there will be overall. Before arranging to meet with your lender, take a close look at your finances and estimate what kind of monthly payment you will be able to stick to for the remaining duration of your loan.

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Key takeaway
Negotiate a new payment plan before you get behind on your loan. If you wait until after your payments are late, you may not have a vehicle to drive.

2. Sell the vehicle 

Another strategy is to sell the car. Because you don’t own the car outright, you need to get permission from your lender first. Contact the lender, let a representative know you are interested in selling the car and ask about the transfer process and paperwork, including the credit application a potential new owner would need to fill out.

Trading in your car at a dealership is similar to selling, but it may be a simpler process than going through a private sale. However, you may not receive as much for your vehicle from a dealer.

You may also be able to sell to a friend or family member if that’s something you are interested in — and the lender approves. But you are still on the hook for any remaining balance on the auto loan.

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Key takeaway
The closer the sale price of the car is to the amount you owe, the less money you’ll have left to pay off. 

3. Voluntary repossession

You should consider turning your car over to your lender as your absolute last resort. To make this process more bearable, ask your lender if turning over your car voluntarily will clear you of your loan obligation.

By turning in the car, you save your lender the cost and hassle of repossession, so you may be able to strike a more favorable final pay-off amount. It may free you of some final costs, including late or prepayment fees or fees tied to the resale of the vehicle. But this route will mean a hit to your credit score and could make auto financing more difficult in future.

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Key takeaway
Even if you voluntarily give up the vehicle, there still might be some payments that the lender will expect you to cover — and a negative mark on your credit report. 

4. Refinance your loan

Refinancing your loan will help you save money month to month, in the long term or both.

  • A lower interest rate can decrease your monthly payment and overall interest paid. However, this can be difficult to do if you’re already behind on payments or don’t have great credit.
  • A longer repayment term can decrease your monthly payments, but also increase overall interest paid.

Refinancing is a good option if your credit score has improved since you initially signed off on your loan agreement. A better credit score means you can likely qualify for lower interest rates and more favorable terms.

But be on the lookout for any fees that come along with refinancing your loan. A common one being an early repayment penalty which is exactly what it sounds like — a fee for paying off the loan early.

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Key takeaway
If this is the right option for you, take a look at Bankrate’s 2022 winner for the best lender to refinance with. 

5. Pay off the car loan

If you are struggling to meet your monthly payments, then the option of paying off your loan entirely may be a stretch. But if you have the financial backing to pay it off, you can walk away and get rid of the financial stress of even more potential debt.

One way to pay off your loan is to pay one large lump sum. Before going ahead with this route, be sure to confirm with your lender the amount owed. It will most likely be a combination of your loan balance along with your interest fees.

Another — less daunting option — can be to raise your monthly payment slightly, so that the payoff happens earlier. It means less interest overall but may not be possible if you already fall short of making your car payments.

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Key takeaway
Avoid putting yourself in another precarious financial situation by having to dip into your retirement or other savings in order to pay off the vehicle.

Exiting a lease

Because you don’t own the car, you have far fewer options to end a lease early.

First, contact your leasing company and ask to rework your terms. Be upfront about your financial situation and try to have an amount in mind that you will be able to pay through the end of the lease.

In most cases, you will be required to make the remaining payments even though you are returning the car. Some leasing companies charge an early lease termination fee and disposition fee — on top of any other standard end-of-lease fees, like potential excess mileage charges.

You can also transfer your lease to someone else, but this won’t be cheap or risk-free. Online sites, such as Swapalease, LeaseTrader and LeaseQuit, help current lessees connect with drivers willing to take over their leases. Fees vary widely, so shop carefully.

The bottom line

It is never too late to walk away from a loan or auto lease if you can no longer afford it. Take the time to understand all of your options and choose what is best for you based on your financial situation.

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Written by
Rebecca Betterton
Auto Loans Reporter
Rebecca Betterton is the auto loans reporter for Bankrate. She specializes in assisting readers in navigating the ins and outs of securely borrowing money to purchase a car.
Edited by
Auto loans editor