Struggling to make car payments? Here are some tips for getting out of a car loan you can't afford.

Your inability to make car payments could result from a layoff, illness, unexpected repair, or other financial difficulties.

If you're still having trouble making your monthly loan payments, it may be necessary to consider ending the loan.

Several methods exist for legally terminating a car loan without defaulting, which could negatively impact your credit and lead to the lender seizing the vehicle.

Find the best auto loan for you

Renegotiate the loan terms

If you're facing financial hardship, your lender may be open to modifying your payment plan. The sooner you contact them, the more likely they are to approve your request. Additionally, having a plan in place to get back on track may increase your chances of success.

If you're facing a temporary hardship, like an illness or a missed paycheck, changing the terms of your loan could be helpful, even though it may cost you more in the long run.

Your lender may be open to changing your payment date or temporarily suspending one or two payments. Although the loan will continue to accrue interest, this could prevent you from falling behind on your payments and potentially damaging your credit score and jeopardizing your possession of the asset.

The Consumer Financial Protection Bureau states that certain lenders allow borrowers to postpone the principal on their payments but still require them to pay the interest.

A payment plan may assist you in catching up if you have fallen behind for several months, but it will only provide a brief respite. You may still need to make both your regular payments and a portion of the missed payments.

Refinance your auto loan

If your credit score has improved, you may be eligible for a lower interest rate on your car loan through refinancing. However, extending the length of your loan could result in lower monthly payments, but higher interest costs in the long run.

Obtain the best deal by obtaining quotes from your current lender and other companies.

Prequalification is available from some lenders, which can help you estimate your monthly savings without negatively impacting your credit score with a hard inquiry. Autopay offers online prequalification for car loans, and refinancing loans are accessible to borrowers with a credit score of 550.

Customers who refinance with Autopay save an average of $105 per month, with loans starting at 4.67% APR, significantly lower than the industry average of 7.1% for new cars in February 2024.

Capital One Auto Finance offers online prequalification without a credit check, and approval decisions can be made in under 24 hours. Interest rates start at 4.1%, with terms ranging from less than 12 months to 84 months.

Capital One does not charge an application fee and approves borrowers with credit scores as low as 540, but there is a $7,500 minimum for refinancing loans and the original loan must not be with Capital One.

Sell the car

To pay off your loan, you can sell your car and use the money to satisfy your balance. First, contact your lender to determine how much you need to pay off your loan. Then, look up your car's value on a vehicle valuation site like Kelley Blue Book or Edmunds.

If your car is worth less than the payoff amount, you may need to cover the difference. If you don't have the cash on hand, a personal loan with a lower interest rate may be an option.

Upstart evaluates creditworthiness using non-traditional factors such as employment and education, allowing lenders to approve borrowers with credit scores as low as 300. Additionally, Upstart claims that a majority of approved loans are funded the next business day.

Discover offers personal loans with no origination or early payoff fees, and you can receive a decision on the same day. Loans start at $2,500 and Discover's fixed interest rates begin at 7.99%.

To be approved for borrowing, borrowers must have a credit score of 670 or higher.

Agree to voluntary repossession

If you can't make payments and your financial situation doesn't seem to improve, a voluntary repossession (also known as a surrender) might be the best option for you. This will have a similar impact on your credit score as an involuntary repossession and will remain on your credit report for up to seven years.

Experian suggests that future lenders may view your credit history more favorably if you avoid having your vehicle seized, which would also save you from the associated fees.

If you choose to surrender your car to your lender, they will sell it and apply the proceeds towards your payoff amount. However, if the sale does not cover the full amount owed, you will be responsible for the remaining balance, which may be sent to collections. If your lender forgives the outstanding balance, it will be considered taxable income.

Pay off the loan

Paying off a car loan in full can be a challenging goal, especially if you're already struggling with monthly payments. However, doing so can help you save on interest, improve your credit score, and reduce your debt-to-income ratio. If you're making on-time payments, this can be a great way to boost your credit score. However, if you're falling behind or at risk of defaulting, paying off the loan in full may not be the best option.

Consider borrowing money from a friend or family member or taking out a personal loan with a lower APR.

Is it worth paying a prepayment penalty to get out of your auto loan?

How to get out of a car lease

If you're struggling with lease payments, the options are somewhat different.

Return the car

The most straightforward method to exit a car lease is to bring the vehicle back to the dealership. However, you will be required to pay an early termination fee, which typically consists of a fixed amount plus the difference between the lease balance and the car's current market value. Before making a decision, ensure that the fee does not exceed the remaining monthly payments.

Transfer the lease

If you can't pay the termination fee, you may transfer the lease to another person if your lease agreement allows it.

You can list your vehicle and lease terms on websites such as Leasehackr, Swapalease, and Leasetrader to find someone to take over your lease. There may be a charge, but it is typically much less than a termination fee. Be sure to review your contract to determine if you would be held responsible if the new lessee fails to make payments on time.

Roll over payments

If you roll over your remaining payments into a lease on another car, your new monthly payments will increase, and you may end up paying more than the car is worth.

Buy out the lease

If the car is worth less than the residual value of what you paid, it may not be worth buying out the lease and selling the car.

Bottom line

If you're struggling with a car loan you can't afford and getting an extension or deferment won't help, there are options to get out of your current car loan. Some of these options include refinancing, which will allow you to keep the car, and voluntary repossession, which means giving up your vehicle.

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