How to Get Out of a Car Loan Contract

by Valencia Higuera ; Updated November 27, 2018
Get Out of a Car Loan Contract

Despite your best laid plans, it's possible that an unexpected situations will make it difficult for you to afford your car payment. Rather than stop making payments and have the finance company repossess the automobile, you might think about getting out of the car loan contract. Canceling a car loan contract can lower your credit rating and make it difficult for you to qualify for a future loan, but there are some things you can do to minimize the impact.

Getting Out of a Car Loan in the First Three Days

Start by reading your auto loan contract. Some auto loan contracts include a clause that allows new buyers to return a vehicle within three days of a purchase without penalty. If you change your mind and you want to return the car, carefully read your loan agreement and see whether you're able to cancel the contract. You are responsible for paying interest on the loan from the day you sign the agreement. The longer you delay speaking to the loan company, the more likely you are to miss the cancellation window and the more money you will have to pay on the loan.

Break the Agreement

If you cannot get out of the loan agreement contractually, consider returning the car and paying all the interest that is due on the loan. What you're doing here is breaking the agreement prematurely. You will become liable to pay all the monthly fees, interest payments and penalties right up until the end of the auto loan term. Be sure to read the car loan agreement, which should spell out all the various charges.

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Sell or Refinance the Vehicle

If unable to return the vehicle, or the charges are more than you can bear, contact your finance company and ask for your payoff balance. Place classified ads in the newspaper or position a "for sale" sign in the vehicle's window. Sell the automobile, and use the proceeds to pay off the auto loan. In a similar vein, you might consider refinancing the vehicle loan. If you don't like the terms of your existing car loan, find a new lender and refinance the loan. A refinance can reduce your interest rate and monthly payment, or extend your loan term.

Consider a Voluntary Repossession

As a last resort, consider asking for a voluntary repossession and return the car to the dealership. The dealership will auction off the vehicle to pay off the loan balance. If the car sells for less than the balance owed, that is, you're trading in a car with negative equity, you're responsible for the remaining balance and any daily interest accruals until the loan is repaid in full. It's not an ideal solution, but worth considering if you've exhausted all the other options.

About the Author

Valencia Higuera is a freelance writer from Chesapeake, Virginia. She has contributed content to print publications and online publications such as Sidestep.com, AOL Travel, Work.com and ABC Loan Guide. Higuera primarily works as a personal finance, travel and medical writer. She holds a Bachelor of Arts degree in English/journalism from Old Dominion University.

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