Can You Get Out Of A Car Loan
Yes, you can get out of a car loan in a number of ways. You can either choose to:
- Transfer the loan
- Give back the car
- Refinance it
But firstly, its good to understand one of the main reasons why a borrower will try to get out of their car loan the upside-down car loan.
What Is An Upside-Down Car Loan?
An upside-down car loan, sometimes referred to as underwater, means that the borrower owes more on their car loan than the car is worth, resulting in a position of negative equity.
This can often happen with newer vehicles because their value will depreciate significantly right after theyre driven off the dealership lot. As the years roll by, the car market fluctuates and the cars value goes along with it.
This is a problematic occurrence with pricier, luxury models in particular. A buyer will jump at the chance of the seemingly low monthly finance payments, failing to consider what it will actually cost them in the long run.
Your Options When The Bank Repossesses Your Car
If your bank or lender repossesses your car, truck, or van, there are several options you can explore. Depending on your financial situation, it might make sense to get your vehicle back. But in some cases, you might want to surrender your car. Regardless of which decision you make, youâll need to make sure it aligns with your financial goals and economic situation.
Repaying A Hire Purchase Agreement Early
If you decide to return the car, tell the finance company by letter or email and keep a copy. Make very clear youre returning the car and ending the agreement. If you dont do this you could be seen to be defaulting on your payments, which could affect your credit rating.
With hire purchase , you can return the car early if youve already paid for at least half of its cost or make up the difference between what youve already paid and half of its cost.
If youve already paid more than half the cars cost, you wont receive a refund of the difference.
The credit agreement you signed before taking the car should show its total price and what youll have to pay if you return the car.
Returning the car early can make sense if you no longer need it or could buy a comparable car elsewhere for less than your remaining payments would cost you.
Ending A Personal Contract Hire Early
If youve been leasing a car through Personal Contract Hire , you might have to pay off the leasing costs in full if you return the car early.
So think very carefully before cancelling the agreement and find out exactly what these total costs would be.
If youre having problems paying the monthly leasing charge, talk to the finance provider.
They might offer to extend the length of the lease, which would lower your monthly payments, or come to some other arrangement to help you out.
Refinance The Car Loan
If the issue with monthly payments is affordability you may want to look at refinancing your car loan. Qualifying for a new loan with a lower interest rate could save you money and potentially reduce your monthly payment.
It’s important to consider the new loan term, however. If you refinance into a longer loan term, your monthly payments may be lower. But you could still end up paying more in interest versus choosing a shorter car loan. Be sure to check the best car loan rates before going this route.
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The Actual Last Resort: Giving The Vehicle Back
If you cant sell the vehicle to a private party, a dealer wont buy it, and you dont have the option to roll over your auto loan, then you may have to consider voluntarily surrendering the car to the dealership.
This is commonly called voluntary repossession. Voluntary or not, its classified as a repossession on your credit reports. Once you return the vehicle, its considered a default because youre no longer making payments. The car is then prepped to be sold at auction, and the proceeds from that are applied to your remaining loan balance. If the loan isnt completely paid off, called the deficiency balance, you still owe that to the lender.
Having a repossession listed on your credit reports and the possibility of still owing your lender money after the auction, is why a voluntary repo should be considered a last resort. You may be better off to continue making the payments on the vehicle since a repo can make it difficult to get into another auto loan with most lenders for at least a year.
What Does Voluntary Termination Mean
So, ending your PCP or HP deal means youll be voluntarily terminating your agreement but what does this mean? And does it cause you credit score problems going forward?
The term voluntary termination comes from Section 99 of the Consumer Credit Act 1974 a part of the law that was created to protect people who could no longer afford to pay their monthly repayments. That said, the law is balanced so it also prevents finance companies having to foot the cost if someone just walks away from their agreement at any time .
You are required to give your lender written notice of your intention to terminate the agreement and its important that you do so, as simply not paying your finance can lead to the voluntary surrender of your car which is a very different process.
Under a voluntary surrender, the finance company will have your car recovered and then sold at auction. Youre likely to be charged heavily for the logistics involved with surrendering your car and, if the car doesnt sell for the full outstanding amount, youll be pursued for the outstanding balance.
While voluntary termination generally wont have a negative impact on your credit score voluntary surrender will, so its an option best avoided if at all possible.
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You Changed Your Mind
When you simply have buyers remorse after buying a car, youll probably have the hardest time getting the dealer to agree to a car return. Thats because very few dealerships have a return policy once you sign the sales contract, youre responsible for paying the note as promised.
Although the FTC has a Cooling-Off Rule a rule where you have three days to cancel a sale made at your home, workplace or sellers temporary location a vehicle purchase is one of the exceptions to the rule. Even if a dealership sells you a car at a temporary location, as long as they have a permanent location, the rule still applies.
Selling A Car With A Loan On It
Another option involves selling your financed car to a private individual or by trading it in at a car dealership. Depending on your financial situation and needs, one option may be more suitable than the other.
How To Sell A Car With A Loan On It?
Sell It Privately When money is tight and you just want to get rid of your car loan, selling it may be the best option. By selling your car, you can use the money from the sale to pay off the car loan.
However, since the lender will have a lien on your car even after you sell it , buyers may be hesitant to purchase the car from you. To alleviate some of the apprehension they may be feeling, you can tell the buyer they can come with you to the bank, so they may witness you paying off the car loan.
Trade It In If money is tight, but you still need a car, you can opt to trade-in your car for a cheaper option. The money you get from your trade-in can be used to pay off your old car loan and as a down payment for your new car loan.
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How Can I Rebuild My Credit After A Voluntary Surrender
You may not be able to avoid voluntarily surrendering your vehicle. If that’s the case, then having a voluntary surrender in your credit history will likely impact you for some time. The good news is that you can start rebuilding your credit scores right away. Here are some tips to begin improving your credit:
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When Your Car Or Goods Can Be Repossessed
A credit provider can’t repossess your car or goods without a court order if you owe less than:
- $10,000, or
- 25% of your loan
If you owe more than this, they can repossess your car or goods, but only if:
- you’re behind on repayments, and
- they have sent you a notice giving you 30 days to pay the overdue amount, and
- the 30 days have passed and you haven’t paid this amount, or made an arrangement to pay, or asked to postpone repossession
Your car can’t be repossessed if it’s parked on your property this includes your garage and yard. If your car is parked on the street, it can be towed away.
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Time Period To Reinstate
If you’re allowed to reinstate the loan by state law or by the terms of your loan agreement, then you might have even less time to act. To reinstate the loan, you pay off the overdue amounts, plus certain costs and fees, to bring the loan current.
State laws vary on the amount of time you have to reinstate the loan. Typically, you’re allowed only 15 days after the repossession to reinstate the loan. If your right of reinstatement is based on the loan agreement, then the time period might be more or less, depending on what the agreement says.
If Your Car Loan Lender Repossessed Your Car Van Truck Motorcycle Or Other Vehicle And You Want It Back You’ll Have To Act Quickly
- redeem the car or reinstate the loan
- wait until the sale and attempt to bid on the vehicle at auction, or
- negotiate with the lender to try to get the car back.
But whatever you do, you must act quickly otherwise, you’ll lose the opportunity to get the vehicle back. There’s no hard and fast rule on how much time you have to get a car back before the lender sells it. Generally speaking, the lender must give you notice that allows a “reasonable time” prior to the sale for you to react and exercise your options. At least ten days’ notice is usually considered reasonable. Your state’s law may also be more specific about the timing of notices. For example, California requires at least 15 days’ notice before the sale.
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If youre struggling to meet household bills as well as your car payments, get free, confidential advice from a debt advice organisation or charity.
Exiting early is better than falling into arrears and damaging your credit score which could make it significantly harder to get finance in the future and mean increased interest charges for the deals you can get.
How Do I Give Back A Financed Car
According to Nolo, a legal advice website, you can simply call the dealer and return a financed car, but the lender is under no obligation to release you from the debt owed. The lender may sell the car, but you may still be found liable for the difference between the price the lender gets from reselling the car and the price you agreed to pay.
When you are having trouble making car payments, the best thing to do is contact the lender and try to work out an arrangement, according to an article on the Fox News Network website. Some lenders allow you to trade down into a less expensive model, while others may extend the loan term, which lowers your monthly payment.
Turning in a financed car is still a better option than having it repossessed. According to Fox News Network, repossessing a car costs the finance company up to $8,000. You may find yourself liable for these charges as well if you are unable to come to an agreement with the financing company. If you are unable to afford your financed vehicle, your lender may allow you to find someone who will assume the payments. However, this can be difficult to accomplish, as the new buyer has to be deemed creditworthy by the financing institution.
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When You Can No Longer Afford Your Car Payments Voluntary Repossession May Seem Like The Best Way To Get Your Car Loan Off Your Hands
But returning your car to your lender could have serious financial consequences, including your account going into collections and your credit taking a hit. Lets take a look at the impact that a voluntary repossession can have on your finances, along with alternatives to consider before you hand over your keys.
Fair Wear And Tear And Ending Finance Or Leases Early
When youre ending agreements early, keep in mind that the condition of the vehicle is important. General wear and tear is acceptable but youll be charged for the repair costs of things like broken wing mirrors or larger scratches.
Check with your dealer to find out what is classed as fair wear and tear. You can also find out more about what counts as fair wear and tear online from BVRLA in their 2021 guide, or order a hard copy
Check your manufacturers guidelines for more information.
For damage that doesnt count as wear and tear, its worth checking to see if you can get the car repaired by a reputable garage cheaply before returning it.
Heres a summary of what else you need to know when settling car finance early.
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How Long Will The Damage Last
The damage to your credit report from a voluntary repossession will last at least seven years from the time your account became delinquent with the original creditor. A court ordered wage garnishment for any deficiency balance will last for at least seven years from the date the judgment is ordered.
The damage can be minimized in two ways. The first is to file bankruptcy. A discharged bankruptcy will cover the original loan and eliminate the deficiency balance. After filing for bankruptcy, any wage garnishments must stop. While the garnishment may stop, in many states the court order will still appear on your credit report, though it will show a zero balance owed.
The other way to minimize the damage from a repossession is time. Even though it will appear on your credit report, the effects of a negative mark fade over time.
The Title Loan Value Of My Car
The title loan value of your car represents the worth of your car as the current market price based on your car model, age, location, current condition. You can use free online calculators such as Kelley Blue Book or Carfax to determine your cars current price.
Any automobile sale would begin with obtaining a credible assessment of its worth. Two reliable sources for automotive appraisals are Kelly Blue Book and Cars.com. In reality, both companies should provide you with quotes. To receive the best accurate valuation, give as much information regarding the object as possible. Because this is the marketing approach youll be following, you will concentrate on private function.
They also offer exchange if youd like to do it that route, as well as dealership retailing, which isnt applicable since youre not an actual auto wholesaler. When it comes to valuing the automobile, a precise estimation of its value is critical, especially if it has a loan attached to it. The title is then signed by you and the borrower and given to the purchaser. Finally, the purchaser brings the approved title to the countys automobile administration to obtain new registrations and ownership.
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What Happens When The Bank Repossesses Your Car
Like many other types of loans, such as a mortgage, an auto loan is a type of secured debt. This means that lenders, such as banks, will secure the car loan by attaching a security interest to the motor vehicle. This gives the lender the legal right to repossess the car if the borrower defaults on the loan. In the majority of situations, the default will consist of missing one or more car payments.
The lender may have the right to repossess your car, but they must follow strict rules governing how they can go about doing so. State laws differ about how car repo professionals may take back a vehicle. However, in most states, you will have the following rights as an auto loan borrower.
Should I Finance A Car Through A Dealer Or A Bank
There are a number of ways you can get the finance you need to buy your next car. The question is, should you look into bank loans or stick to the finance package your dealer puts together for you?
Well explore the subject in a little more detail and look at some of the pros and cons associated with each option.
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