What Happens If I Don’t Want My Financed Car Anymore?

Navigating the complexities of a financed vehicle can be challenging when it no longer meets your needs or financial situation. Understanding the available options and their financial implications is important for making an informed decision.

Selling or Trading In Your Financed Car

Selling or trading in your financed car can be a proactive approach to managing your loan. First, determine your car’s current market value using online tools like Kelley Blue Book or Edmunds. These platforms consider factors such as the vehicle’s make, model, year, mileage, condition, and features. Simultaneously, obtain the exact payoff amount from your lender, which includes the principal balance, accrued interest, and any applicable fees.

Comparing your car’s market value to its loan payoff amount will reveal your equity position. If the market value exceeds the payoff amount, you have positive equity, meaning you could sell the car and potentially have funds remaining after the loan is satisfied. Conversely, if the payoff amount is higher than the market value, you have negative equity, commonly referred to as being “upside down” on your loan. Preparing your car for sale or trade-in, such as cleaning it thoroughly and gathering maintenance records, can help maximize its perceived value.

If you sell privately, you will find a buyer and coordinate the loan payoff directly with your lender. The buyer’s funds pay off the outstanding loan. Once the lender confirms satisfaction of the debt, they release the lien on the vehicle, which is crucial for transferring a clear title. Ensure the transaction is handled securely, often involving a bank or title company, to guarantee proper lien release before title transfer.

For those opting to trade in their vehicle at a dealership, the process typically involves the dealership managing the existing loan. The dealership incorporates your car’s trade-in value into the financing of a new vehicle. Positive equity can serve as a down payment, reducing the new loan amount. If you have negative equity, the dealership may “roll over” the outstanding balance into the new vehicle’s financing, increasing the new loan’s principal, monthly payments, or loan term.

Voluntary Surrender of Your Financed Car

Voluntarily surrendering your financed car means returning the vehicle to the lender when you can no longer afford payments. Contact your lender directly to inform them and understand their specific procedures for return, including where to drop off the vehicle. Remove all personal belongings and keep detailed records of the surrender, including date, location, and the person you interacted with.

After the vehicle is surrendered, the lender will typically sell it, often at a public or private auction, to recoup as much of the outstanding loan balance as possible. The proceeds from this sale are then applied to your loan. However, the sale price often does not cover the entire remaining balance, especially after accounting for the costs associated with the repossession and sale process, such as towing, storage, and auction fees.

Consequences of Not Making Payments

Failing to make payments on a financed car can lead to severe financial consequences, beginning with involuntary repossession. This occurs when the lender takes possession of the vehicle without your direct consent, often without prior warning, as soon as you default on the loan agreement. The exact timing can vary, but repossession typically happens after multiple missed payments or a significant default. Once repossessed, the car is then sold by the lender, usually at auction, to recover the debt.

A common outcome of both voluntary surrender and involuntary repossession is a “deficiency balance.” This balance is calculated by subtracting the sale price of the vehicle from your outstanding loan amount, then adding any costs incurred by the lender for the repossession, storage, and sale. For instance, if you owed $12,000, and the car sold for $7,000 with $500 in associated fees, your deficiency balance would be $5,500. You are legally obligated to pay this remaining balance.

The impact on your credit score is substantial. A repossession, whether voluntary or involuntary, is reported as a derogatory mark on your credit report. This negative entry can cause a significant drop in your credit score, potentially by 100 points or more. The repossession will remain on your credit report for approximately seven years from the date of the original missed payment that led to the default. This can make it more challenging to obtain new credit, secure loans, or even rent an apartment, and any new credit you do obtain may come with higher interest rates.

If you do not pay the deficiency balance, the lender may take further legal action to collect the debt. This can include selling the debt to a collection agency, which will then pursue you for payment. Alternatively, the lender or collection agency may file a lawsuit against you. If they win the lawsuit, they can obtain a court judgment, which may allow them to pursue wage garnishment, where a portion of your earnings is legally withheld by your employer and sent directly to the creditor. They may also be able to seize funds from your bank accounts or place a lien on other property you own.