How to Get Out of a Car Loan

Austin KilhamUpdated January 13, 2025

Share this article:

Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.

Getting out of a car loan can be a tough decision, but it’s often necessary if your financial situation changes or the loan becomes unaffordable. Whether you’re dealing with high monthly payments, unexpected expenses, or negative equity, there are options to address the issue.From selling the vehicle to refinancing or negotiating with your lender, there are several ways to exit a car loan. Here’s a look at each and the factors to consider before deciding how to get out of your car loan.

How Do Car Loans Work?

Buying a new or used car is likely one of the biggest purchases you’ll make. The average cost of a new car in 2024 is $48,397, according to Kelley Blue Book, so it’s no surprise that many car buyers need to finance their purchase with an auto loan. When it comes to how auto loans work, you borrow money from a lender to cover the price of the vehicle you wish to purchase. As the borrower, you agree to repay that money over time in regular installments, including interest. You may also have to pay various fees associated with the loan. Payments are made over a set period of time, known as the loan term. Terms can be anywhere from 12 to 84 months, though on average they are about 72 months for new cars and 65 months for used ones. The shorter the term, the higher your monthly payments will likely be, but the less you’ll pay in interest. The longer the term, the lower your monthly payments will be. However, because interest payments are drawn out over a longer period, these loans may be more expensive in the long run. In general, borrowers with strong credit scores (670 and up is considered “good”) and stable incomes will be offered good interest rates and terms. Recommended: 10 Types of Car Loans

Can You Get Out of a Car Loan?

If, for some reason, you find that your auto loan is no longer working for you — perhaps you don’t need the car anymore or you can’t afford the payments — then it is possible to get out of your car loan.

5 Ways to Get Out of a Car Loan

Here’s a look at some of the options to see your way to getting out of car loan.

1. Selling Your Car

You can sell your car while you’re still making payments. Before you do, however, find out what the payoff amount is. This is the amount you still owe before you own your vehicle outright. Ideally, this is how much you’d garner from a sale. First, you’ll need to find out what your car is actually worth, which you can do using online resources such as Kelley Blue Book. Subtract the amount you still owe from the car’s value. If the resulting figure is negative, you owe more on your loan than the car is worth. In other words, you have an “upside down loan” on your hands, and you have negative equity in the vehicle. If you have negative equity, you’ll be required to make up the difference to ensure you repay your loan in full.

2. Trading in Your Car

If you’re having trouble affording your monthly payments, you may consider trading in your car to a dealer toward the purchase of a less expensive car. Weigh this option carefully, however, since dealer trade-ins usually offer less money than you’d get through a private sale.

3. Refinancing Your Loan

Another way to help you afford your monthly payments is by refinancing your loan. When you refinance, you pay off your old auto loan with a new one, ideally with a lower interest rate or lower monthly payments. One way to make your monthly payments more affordable is by extending the loan term. But beware, this can make the loan more expensive in the long run. You may want to consider refinancing if interest rates have dropped or you’ve built your credit score, which helps you qualify for a loan with a lower rate. Note: This option may not be worth it if the fees you’ll owe on your new loan outweigh the savings from refinancing. Recommended: Pros and Cons of Refinancing Your Car

4. Renegotiating With Your Lender

If you’re struggling with your auto loan payments, consider reaching out to your lender to renegotiate your car loan. Talk to them about your situation, and see what solutions they may have to offer. For example, if you are in some sort of financial distress and afraid of missing payments, your lender may be able to offer you forbearance on your loan, which puts payments on pause for a period. Your lender might offer to extend your term without refinancing, or they might be able to modify your monthly payment to make it more manageable. Recommended: 8 Ways to Get a Lower Car Payment

5. Voluntarily Surrendering Your Car

This option is available to you if you’ve already defaulted on your loan and your lender is going to repossess your car. Voluntary repossession gives you more flexibility in how you return your car to your lender.

Does Getting Out of a Car Loan Affect Your Credit?

Getting out of a car loan can hurt your credit. If you pay off your loan through the sale of your car, you may reduce your credit mix, one of the key components of your FICO® credit score. Seeking new credit through an auto loan refinance can also cause a dip in your credit score. Lenders worry that borrowers with new credit may be more likely to default on their loans. However, your payment history is the biggest component of your credit score, so the thing that will hurt your credit most is missing payments, going into default, or having your car repossessed. Do what you can to avoid these possibilities, including refinancing, renegotiating, or selling your vehicle.

The Takeaway

If you no longer wish to have a loan for your automobile, there are certainly options to getting out of a car loan. Paying off the loan, whether with cash on hand or by selling your car and using the proceeds to do so, is the best way to clear your debt. Otherwise, if it is a question of finding a more affordable monthly payment, renegotiating, or refinancing.If you’re looking to refinance your auto loan, Lantern by SoFi can help. With just one simple form, you can compare auto loan refinance rates from top lenders in our network.Compare auto loan refinancing rates today with Lantern by SoFi.

Frequently Asked Questions

Will Returning a Car Hurt My Credit?

Can I Sell My Car If I Still Owe Money on It?

Can I Sell My Car Back to the Dealership?

iStock/leventince

LNTALR-Q424-018

About the Author

Austin Kilham

Austin Kilham is a writer and journalist based in Los Angeles. He focuses on personal finance, retirement, business, and health care with an eye toward helping others understand complex topics.

Share this article: