Whether you want to get out of a bad car loan to balance your budget or save for other expenses, there are seven ways to get out of a car loan. Let’s walk through your options, which include refinancing, selling, downsizing, negotiating and more.
1. How to get out of a car loan by refinancing
Refinancing your car loan involves taking out a completely new loan with a different lender to pay off your current car loan. You get different rates and terms. Plus, it gives you an opportunity to change companies if you’re unhappy with your current lender.
You can benefit the most from refinancing if your credit, income or other aspects of your personal finances have improved since you first took out your car loan. But even if it’s stayed the same, compare refinancing offers to see if you qualify for something better.
However, if your credit score has gone down or your finances aren’t in great shape, refinancing might not be the best way to get out of a car loan.
Refinance your car loan
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2. Trade in your car for a less expensive one
When refinancing is off the table, you can often downgrade to a less-expensive, used car by trading it in at a dealership. You won’t fully get out of your car loan, but you could reduce your balance.
Read the contract carefully before you sign it, though. Some dealerships will try to move your current balance into a loan with a longer term. This gives you lower monthly repayments, but you could actually end up paying more in the long run in interest if your rate stays the same.
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How to find out how much your car is worth
Nowadays it’s pretty easy to find out how much your car is worth. All you have to do is gather some basic information about your car like its make, model, trim and year. If know your car’s VIN number you can usually get a more accurate estimate of its value.
Once you’ve gathered that information you can go to some Canadian car value estimate sties like Canadian Black Book, Carfax or Auto Trader Canada where you can enter your vehicle’s information to get an estimate of how much it’s selling for at the moment in Canada.
3. Sell your car to a private party
Selling your car to a private party and using the profits to pay off the loan is another good option to consider when you’re wondering how to get out of a car loan. This can be a bit more complicated when your car still has a lien on it, so just be up front with the buyer about the process.
Before you sell your car, research how much it’s worth and ask your lender about your loan payoff amount—it’s slightly higher than your balance since it takes into account unpaid interest. Get a ballpark idea of your car’s value online through sites like CARFAX Canada or the Canadian Black Book.
Consider having it appraised by a professional before you actually sell it. If your car’s value is less than your payoff amount, this option might not be the best choice for you.
4. Transfer the loan to someone else
Your lender may let you directly transfer your car loan to a friend, family member or new owner who will pay off the debt. Not all lenders allow you to transfer a loan to another person, so if you’re considering this, contact your lender first to explore the option.
The new loan holder must meet the lender’s qualification requirements to be approved to take over the loan. Make sure your name is completely removed from the loan documents, or you might still end up being called on to repay the loan if the transferee defaults.
5. Move your debt to a balance transfer credit card
If you’re struggling to repay a high interest car loan, you could save by shifting the debt to a balance transfer credit card. However, this might not be the best way to get out of a car loan if you have bad credit or low income, because you might not qualify for high enough credit limit or a favorable rate.
Even if the credit card rate is higher than your current car loan, you may be able to take advantage of a low APR promotional period, which could be as long as 6 months or more. You’ll be responsible for making minimum monthly payments, which might more easily fit into your budget.
Quick tip: Don’t just pay the minimum
If you choose this method, commit to making fixed repayments each month that you can afford. Only making the minimum monthly repayment can quickly land you with an unmanageable pile of debt when interest kicks in.
6. Negotiate with your lender
When you can’t qualify for refinancing and would rather keep your car, talking to your lender might be the best next step. Call your lender and explain what it is about your car loan that you’d like to change.
If your credit or income has improved, be prepared to provide proof—they might be willing to give you a better rate or more favorable terms. If you’re consistently struggling with repayments, consider asking for a longer term.
Are you facing a short-term financial setback like temporary unemployment? You might be able to pause your car loan repayments for a few months. However, this should be a last resort. Interest that builds up while you’re not making payments usually gets added to the loan balance, so you’ll be paying interest on interest.
Speak to your lender to find out more about your options.
7. Give the car to your lender
As a last resort to get out of a car loan, you can voluntarily bring your car to your lender. This is sometimes called a voluntary repossession. Surrendering instead of waiting for your lender to repossess your car often might give you room to negotiate. It could also cut down the cost of repossession, which the lender often passes on to the borrower.
If your car’s value has depreciated enough that it’s not worth the value of your loan, you could end up having to pay a small amount—though it’s still less than what you’d have paid on the full loan. If the lender can sell the car for more, ask the lender to give you the difference.
Can you return a financed vehicle in Canada?
Generally, no. Unlike taking a t-shirt back to the store, returning a financed vehicle in Canada is much more complicated. That’s because, as soon as you drive a vehicle off the lot, your car loses value, which means the dealership would be at a loss.
One similar option to returning a financed vehicle in Canada is voluntary repossession. If you can’t afford repayments on your car loan, instead of waiting for your lender to reposes your car and send your loan to collections, contact the lender to arrange for repossession.
While voluntary repossession can seem like a convenient way to get out of a car loan, keep in mind that your credit score will take a hit and that you may still be on the hook for penalty fees and any outstanding balance on the car loan after the lender sells your car.
Can I get out of an upside-down car loan?
You can get out of an upside-down car loan, though your options are typically limited. If your car’s value is worth less than your loan, assess how much your car loan is upside down before reaching out to your lender. They might be willing to renegotiate your loan to get you above water.
Otherwise, you can consider one of the options mentioned above. If you don’t think any of these are the right choice for you, consider making extra repayments. This will help you get you out of debt faster and save on interest—though you’ll still be stuck paying more than your car’s worth.
What happens if I stop paying a car loan in Canada?
If you stop paying your car loan in Canada, lenders will report missing payments to the credit bureaus after 30 days (sometimes longer).
This will hurt your credit score and make it difficult for you to get approved for additional credit. Additionally, your account may be passed on to a collection agency, which will work persistently to get you to repay the balance.
Both of Canada’s main credit bureaus, Equifax and TransUnion, keep delinquent accounts on your credit file for six years.
How getting out of a car loan affects your credit score
When deciding how to get out of a car loan, it’s important to consider how your credit score could be impacted. Each method for getting out of your car loan early will affect your credit score differently. Here is how your score might be impacted depending on which method you choose:
Refinancing your car loan. Your score could drop slightly due to the hard credit pull lenders run when you apply for any new loan. To avoid taking a hit to your credit score, you may want to consider applying for preapproval before you decide on a lender.
Trading in your car. Again, any time you apply for a new financing–even when it’s for a cheaper car than your first one–your credit score will drop slightly.
Selling your car. After you sell your car and use the money to make a lump-sum payment on your car loan, your credit score could go up, but more likely won’t change at all.
Moving you car loan to a balance transfer card. In this case your score will go down slightly at first when you apply for the balance transfer credit card. But, if you consistently pay down your card over time, then your score will could increase.
Negotiating with your lender. Negotiating better loan terms with your lender generally won’t impact your score one way or the other. That being said, if your lender reports this as you neglecting to pay the loan according to your original agreement, then your score could go down.
Giving your car to the lender. Unfortunately, this option will bring down your credit score because it’s essentially defaulting on the loan. Still, voluntarily surrendering your vehicle instead of waiting for it to get repossessed may look more favourable to future lenders.
How to avoid getting a car loan that’s not right for you
Perhaps the best way to get out of a bad car loan is to avoid getting one in the first place. Follow these four tips while searching for your next car loan to lock in a good deal from the start.
Shop around. Don’t just go with the dealership financing. Compare offers from multiple lenders to make sure you’re getting the best deal available to you.
Pay attention to the loan term. A longer term gives you lower monthly repayments but costs more in interest. Opt for the shortest term with repayments you can comfortably afford each month. You can use car loan monthly repayment calculator to help you figure this out.
Make a down payment.Making a down payment of at least 20% reduces the cost of your loan and can also help ensure you’re getting a car you can afford.
Read customer reviews. Borrower reviews on websites like the Better Business Bureau and Trustpilot can help you avoid a shady lender if you notice a pattern of red-flag complaints. Learn how to spot car loan scams and legit lenders.
Bottom line
There are several options for how to get out of a car loan, even if you owe more than your car is worth. If you’re behind on payments, reach out to your lender as soon as possible to discuss options like refinancing or trading in your vehicle.
Generally no, although it depends on the lender. Some might let you cancel your loan within a day or two of signing the papers, but it's pretty rare.
Yes, you can pay off the loan with one lump-sum payment at any point in your loan term. But some lenders will charge you an early repayment fee to cover the interest they would've made over the full term. This fee could prevent you from saving any money by paying off your loan early.
Yes, it will show up on your credit report as a voluntary surrender, along with the remaining balance you owe. While it can hurt your credit score, it might not have as large an impact as repossession.
It depends on your dealer and how far you are in the process. While most provinces and territories don't provide a "cooling off" period for vehicle purchases (which lets you change your mind about the purchase and get a refund), some dealers might offer it anyway. Afterwards, your only option is to resell the car.
If your dealership has a return policy, ask to have a copy in writing before returning your car. Don't let pushy sales tactics force you into making a premature decision. You have a right to hold off on purchasing until you're comfortable.
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To make sure you get accurate and helpful information, this guide has been edited by Stacie Hurst as part of our fact-checking process.
Anna Serio was a lead editor at Finder, specializing in consumer and business financing. A trusted lending expert and former certified commercial loan officer, Anna's written and edited more than 1,000 articles on Finder to help Americans strengthen their financial literacy. Her expertise and analysis on personal, student, business and car loans has been featured in publications like Business Insider, CNBC and Nasdaq, and has appeared on NBC and KADN. Anna holds an MA in Middle Eastern studies from the American University of Beirut and a BA in Creative Writing from Macaulay Honors College at Hunter College, CUNY. See full bio
Anna's expertise
Anna has written 61 Finder guides across topics including:
Chelsey Hurst is a publisher at Finder, specializing in banking and investments. She loves empowering people to avoid financial pitfalls and make better decisions with their money. Chelsey has a Bachelor of Science from Redeemer University, a Master of Science from McMaster University, and has won multiple awards for research communication. In her spare time, Chelsey enjoys cooking and taking long walks in nature. See full bio
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