How to Get Out of a Car Loan Explained

Life changes quickly and there are many reasons you might want to get out of your current car loan. Maybe you need a new car because your family is growing or you’d like to downsize to a vehicle that’s more fuel-efficient. It’s also not uncommon to become overwhelmed with your loan payments because of an unexpected financial burden — like losing your job or having to pay for home repairs after an emergency.

What does it mean to be upside down on a car loan?

If the amount of money you owe on a car is higher than the value of the car itself, you’re dealing with negative equity or an “upside-down” car loan. If you choose to sell your car in this situation, you won’t make enough money to pay off the remainder of your loan.
Getting upside down on a car loan can happen for a few different reasons. For example, if you bought your car with a small down payment or no down payment, you owe nearly the entire amount of the vehicle. Once you drive it home, the car is worth less than the loan because of depreciation. You can also get into negative equity if you overpay for a vehicle or opt for a bunch of add-ons that don’t increase the value of your car.
Being upside down isn’t always a bad thing because the value of your car and the amount on your loan will balance out over time. But if you need to sell your car when you’re upside down, you’ll lose money.
Have negative equity? Check out our blog post on what to with a negative equity car loan.

How to get out of your car loan

Here is a list of tips on how to get out of a car loan with your credit rating and your finances intact:

  1. Figure out your car’s current market value.
  2. Sell your car.
  3. Transfer your car loan.
  4. Refinance your car loan.
  5. Voluntarily give your car to your lender.
  6. Talk to your lender.


Cars lose value very quickly. Unlike houses, which can get more valuable over time, vehicles are an asset that wears out over time and as they get older they are more costly to maintain. In fact, new cars depreciate by several thousand dollars as soon as they’re driven off the dealership’s lot.
It’s important to figure out how much your car is currently worth because it can affect how you should go about getting out of your loan. Do a quick Google search and find a car value calculator that takes your vehicle’s make, model, year, and number of kilometers into account. Check out online classifieds and see what used cars with similar features are selling for. Once you have a dollar figure, you can find out if it makes sense to sell your car to pay off your loan.


If your car is worth more than the remainder of your debt, you can sell your car and use the profits to close out the loan. You’ll be able to pay off your debt in full and your credit rating will stay the same. It’s a good idea to let your lender know if you’re planning on selling your car as they might have specific requirements for closing out your loan.


Another option is to transfer your loan to the person who is buying your car. If you find someone who is willing to take on your debt — maybe a friend or family member — you might be able to work out a new contract under their name with your lender. The new loan owner will have to meet certain criteria set out by the lender, such as having a good credit rating and proper insurance coverage.
Banks and credit unions have stricter regulations and can be more hesitant to accept loan transfers. If you are able to transfer, make sure all of the required documents are signed by the new owner, otherwise, you could be on the hook if they default on the loan.
Unfortunately, if your car has negative equity, options #2 and #3 might not be available to you.


If you aren’t able to sell your car and are struggling to make your monthly payments you can talk to your lender about refinancing or renegotiating your loan. This is usually the easiest solution for both parties because your lender will avoid having to pay to repossess your car if you default, and you’ll be able to get a better rate on your loan without ruining your credit.
Refinancing means getting a new loan to pay off an existing one while refinancing means changing the terms on your current loan. Depending on your priorities, you can ask for a loan with lower monthly payments, lump-sum payment options, lower interest rates, or a different loan term. If you had less than stellar credit when you purchased your car but it has since improved, you will probably be able to get a more competitive interest rate.
Bear in mind that it’s not a good idea to refinance if your current loan has a repayment penalty, which means you’ll be charged a fee for paying off your loan early.


Voluntary repossession should be a last resort because it can significantly damage your credit rating. If you can’t pay off your loan by selling your vehicle or don’t qualify for refinancing, you can voluntarily give your car to your lender if you’re worried about to defaulting on your loan. The lender will sell it at auction and if they can’t get enough to pay off loan you will have to cover the difference.
By having your car voluntarily repossessed, you avoid having your vehicle seized by a collection agency but will get a mark on your credit rating and will have a hard time getting a loan in the future.


If you’re worried about defaulting make sure you talk to your lender first. At Open Road Outlet, our auto finance specialists understand that all financial and credit circumstances are different and will work to find you the car loan the suits you best. Get in touch today to learn about our flexible, hassle-free financing options.


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