How to Get Out of a Financed Car

Circumstances may arise where individuals need to change their current car loan arrangements. Several pathways exist for those looking to alter their relationship with a financed automobile, each with distinct processes and considerations. The best approach depends on individual financial situations and objectives, requiring careful evaluation.

Selling Your Financed Vehicle

Selling a vehicle with an outstanding loan requires understanding its current market value and the precise amount owed to the lender. Online valuation tools like Kelley Blue Book or Edmunds estimate the vehicle’s worth based on its condition, mileage, and features. Obtain the exact loan payoff amount directly from the lender, which includes the principal balance and any accrued interest. This payoff quote is typically valid for 7 to 10 days.

When selling a financed car, determine if there is equity or negative equity. Equity exists when the vehicle’s market value exceeds the loan payoff, meaning sale proceeds cover the loan with a surplus for the seller. Negative equity occurs when the loan balance is greater than the car’s value; the seller must pay the difference to the lender to clear the loan.

For a private sale, after establishing the car’s value and loan payoff, the seller prepares the vehicle, advertises it, and screens potential buyers. Once a buyer is secured and a price negotiated, the buyer provides funds to cover the loan payoff. The seller immediately remits this amount to the lender to satisfy the loan. The lender releases the lien and mails the vehicle’s title to the seller, who then transfers it to the new owner.

When trading in a financed vehicle at a dealership, the process is streamlined as the dealership typically handles the existing loan payoff. The dealership assesses the vehicle’s trade-in value, which is then applied against the purchase price of a new car or lease. If there is equity, it reduces the cost of the new vehicle. If there is negative equity, the outstanding balance is often rolled into the new car loan, increasing the amount financed for the new vehicle. The dealership manages the paperwork and direct payment to the original lender, simplifying the transfer of ownership for the seller.

Refinancing Your Existing Car Loan

Refinancing an existing car loan involves securing a new loan to pay off the current one, often with more favorable terms like a lower interest rate or a different repayment period. Eligibility depends on factors such as an improved credit score, current interest rates, and existing loan terms. The vehicle’s age and mileage can also influence eligibility, as lenders may restrict older or high-mileage vehicles.

To apply for refinancing, gather documents like current auto loan statements, proof of income, and vehicle details (VIN, mileage). Research and compare offers from various lenders, including banks, credit unions, and online lenders, to find competitive rates and terms. Credit unions often provide competitive rates due to their member-focused structure.

Once a suitable lender is identified, the application process involves submitting the required documentation. The new lender conducts a credit check to assess creditworthiness and may require a vehicle appraisal to confirm its value. Upon approval, the borrower signs new loan documents outlining the revised terms. The new lender then electronically transfers funds to the original lender to pay off the existing loan.

Following the payoff, the original lender releases their lien on the vehicle. The new lender then has their lien recorded on the vehicle’s title with the appropriate state Department of Motor Vehicles. This completes the refinancing transaction and establishes the new loan terms.

Voluntary Surrender of Your Vehicle

Voluntarily surrendering a vehicle to a lender occurs when an individual is unable or unwilling to continue making loan payments. While this removes the physical vehicle, it negatively impacts one’s credit score, remaining on reports for up to seven years. Such an entry can make it challenging to obtain credit for future loans, housing, or even some employment opportunities.

The “deficiency balance” is the remaining amount owed on the loan after the lender sells the vehicle and subtracts the sale proceeds from the outstanding loan balance, plus associated costs. For example, if a car is surrendered with a $15,000 loan balance and sells for $10,000 at auction, and the lender incurs $1,000 in fees, the deficiency balance would be $6,000.

Before a voluntary surrender, contact the lender directly to understand their process and potential liabilities. The lender can provide details on how the surrender will be processed, required documentation, and what to expect regarding any deficiency balance. This communication can sometimes lead to alternative solutions, such as loan modification or deferment, if available.

Arranging the vehicle’s return involves scheduling a pick-up with the lender or dropping it off at a designated location. After surrender, the lender sells the vehicle, often at a price lower than retail market value. Following the sale, the lender notifies the former borrower of any deficiency balance. Lenders have various options for collecting this balance, including direct collection attempts, assigning the debt to a third-party collection agency, or pursuing legal action to obtain a judgment, which could lead to wage garnishment or bank account levies.