Can You Back Out of a Car Loan?
When you get a car loan, you’re typically subject to specific loan terms, like repayment timeframe and interest rates. Sometimes, those terms might prove challenging to meet, especially if you come across difficult financial circumstances or decide you want a new vehicle. Any such circumstances might beg the question, “Can you back out of a car loan?” While the answer isn’t exactly simple, since so many factors can affect your loan, there are some things to consider if you’re thinking of backing out of a loan. Here is the answer to the question with a few extra points to help you with your decision.
Can You Back Out of a Car Loan?
The short answer is yes, you can back out of a car loan. While loans are subject to different rules and can have strict penalties if you default on them, backing out of a car loan is still an option. Whether or not it’s a good financial decision to do so depends entirely on your personal circumstances and loan terms. Some lenders might be more forgiving, but most lenders prefer to see a loan paid back in full, with no interruptions.
Why You Might Need to Back Out of a Car Loan
Backing out of a car loan is most likely an emergency decision because of some unforeseen circumstances of financial difficulties. If you have a sudden financial emergency that prevents you from paying your loan premiums each month, you might consider backing out of your loan. This could be anything from sudden damage to a home, the death of a loved one, loss of income or medical expenses. Some lenders might be willing to offer income-driven payments or forbearance, but these terms are subject to the generosity of your lender and aren’t common.
Borrowing from a bad lender can leave you with unfair loan terms or an enormous price for the loan and vehicle. Some lenders charge huge interest rates on vehicle purchases, especially with used vehicles or for people with lower credit scores. This can cause you to pay thousands more than the vehicle is actually worth. You may decide to end your car loan to save yourself some money on the principal and interest costs of financing your car. Visit North Coast Auto Mall’s pre-approval page for the best rates from qualified lenders.
There can be consequences for deciding to back out of a car loan. It’s important to acknowledge them beforehand to be sure you’re making the best decision for yourself. One of the main consequences of backing out of a loan is a loan default. This is when you stop paying monthly premiums, causing the entirety of your premium and interest balances to become due. This is also known as accelerating, and it’s the lender’s way of trying to recuperate the costs of the loan after you stop paying it.
Defaulting on a loan can affect your credit score and financial health for years to come, so consider other options before defaulting. It may also affect your ability to get a car loan for a replacement vehicle. Another potential consequence is having your vehicle repossessed. This is when the lender sends a crew to collect your vehicle because you haven’t paid your premiums. The crew confiscates the vehicle and you may still owe damages and penalties or other fees.
How to get out of a car loan
While there are many reasons to back out of a car loan, you also have options to consider before you default or miss payments. Consider these options for backing out of a loan without destroying your credit or opportunities for future loans:
Refinancing a vehicle loan means applying for a reduced interest rate through another lender, reducing your monthly payments and the total cost of the vehicle. If your credit score improves, you can apply for refinancing and still keep your vehicle. This can be a great option for anyone looking to reduce their monthly payments or not pay as much for the total cost of the vehicle. You can also refinance if you find yourself with less monthly income. Try using our payment calculator to determine how much your car payment can be with a lower interest rate.
Selling the Car
You can also opt to sell your vehicle in a private sale. This can help you unload the burden of paying your monthly premiums, but you still owe the remaining balance to your lender. For example, if you buy a used car and your balance is $8,500 when you sell the car, you must repay that $8,500 to the bank. If you don’t need the vehicle, you can try to break even, or sell the car for the exact balance due. However, if you need another vehicle, you might try to sell your vehicle for a higher price to leave some money left over after you repay the lender. Selling the vehicle and repaying your balance helps protect your credit score, too.
If you can’t afford your car loan, you can reduce your balance by trading in your vehicle for a less expensive model. Take your car back to the dealership where you bought it and ask for the downgrade option. This allows you to trade in your vehicle and reduce the principal balance. You’ll still have a car to use, but won’t owe the entirety of the original principal. This can be a good option for when you buy a vehicle you decide later you don’t actually need.
Backing out of a car loan can have consequences, so consider all of your options before you act. Defaulting on a loan can ruin your credit and chances to buy another vehicle, so it’s a good idea to try refinancing, downgrading or selling the vehicle first so you can repay the lender. We have hundreds of vehicles to match your financial needs, so browse our used car selection in Akron, Ohio, to find the perfect ride today.