How Can You Get Out of a Car Loan?

Car loans represent a significant financial commitment. Circumstances can change, leading borrowers to explore options for ending their obligation before the loan term concludes. Various established methods allow individuals to terminate their car loan responsibilities, whether due to evolving financial situations, a desire for a different vehicle, or no longer needing a car.

Selling Your Vehicle

Selling your vehicle can be an effective way to eliminate an existing car loan. Begin by determining the car’s current market value using online valuation tools. Then, contact your lender to obtain the exact loan payoff amount. You will also need to gather all necessary vehicle and loan documents.

When selling privately, careful coordination ensures the loan is satisfied. The buyer can pay the lender directly, or you can remit the funds immediately after receiving payment. Once the loan is paid, the lender releases the lien, and the title transfers to the new owner. If the sale price is less than the loan payoff amount (negative equity), you are responsible for covering the difference.

Selling to a dealership offers a more streamlined approach. Dealerships are accustomed to handling the payoff of existing loans when purchasing a vehicle. They typically manage the direct payment to your lender and the subsequent transfer of the vehicle title.

Trading In Your Vehicle

Trading in a vehicle at a dealership presents another pathway to addressing an existing car loan. Before visiting a dealership, research your vehicle’s estimated trade-in value and obtain your current loan payoff amount from your lender.

During the trade-in process, the dealership evaluates your vehicle to determine its trade-in value. This value is then applied towards the payoff of your existing car loan. If the trade-in value exceeds the loan payoff amount, the surplus can be applied to a new vehicle purchase or returned to you.

However, if the trade-in value is less than the outstanding loan balance, the difference represents negative equity. This remaining balance is typically rolled into the financing of a new vehicle purchase, increasing the new loan’s principal amount. The dealership handles the necessary paperwork, including the payoff of the old loan and the transfer of the vehicle title.

Voluntarily Returning Your Vehicle

Voluntarily surrendering a vehicle to the lender is an option when selling or trading in are not feasible. Contact your lender to discuss your intention to surrender the vehicle and understand their procedures. You will then arrange a time and place to return the vehicle to the lender or their designated agent.

After the vehicle is returned, the lender usually sells it, often through an auction. The proceeds from this sale are applied to your outstanding loan balance, but it is common for the sale amount to be less than what is owed. The difference between the outstanding loan amount, plus any repossession or sale costs, and the amount the lender receives from the sale is called a “deficiency balance.”

The borrower is generally responsible for paying this deficiency balance to fully extinguish the loan obligation. While voluntary surrender removes the vehicle, it does not relieve you of the financial responsibility for any remaining deficiency.

Paying Off Your Loan Early

Paying off your car loan early is the most direct method to end the financial obligation. Request a precise “payoff quote” from your lender. This quote provides the exact amount needed to satisfy the loan, including all outstanding principal and interest calculated up to a specific future date. Verify if any prepayment penalties apply, though these are uncommon for car loans.

Once you have the payoff quote, you can make the final payment through various methods, such as online transfers, mailing a check, or in-person payment. Using certified funds like a cashier’s check or money order can sometimes expedite the process. After the payment is processed, the lender will confirm that the loan has been paid in full and initiate the lien release.

The final and important step is obtaining the vehicle’s title, or a lien release, from the lender. In some jurisdictions, the lender electronically notifies the Department of Motor Vehicles (DMV) of the lien release, and an updated title is mailed to you automatically. In other areas, you may receive a lien release document that you then submit to the DMV to obtain a clear title in your name. This entire process, from final payment to receiving a clear title, can take anywhere from two to six weeks.