7 ways to get out of a car loan

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.

Compare auto loan providers who offer refinancing

In addition to offering typical auto loans, these lenders also provide car loan refinancing.

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Name	Product	Ratings	APR	Loan Amount	Loan Term	Requirements	Long Table Description
Loans Canada Car Loans Loans Canada Car Loans		Customer Survey: ★★★★★	0% - 46.96%	$500 - $50,000	3 - 60 months	Requirements: Min. income of $1,800 /month, 3+ months employed		Go to site More Info	Compare	loading Fetching your data...

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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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Name	Product	Max. Vehicle Age	Mileage Range	Available Provinces	Vehicle Payment	Link
Clutch Sell or Trade Your Car		2000 or newer	Any	Ontario & Nova Scotia	eTransfer funds in 1 business day	Go to site More Info	Sell or trade-in your car without the hassle. Upload basic information and get an instant offer. Get the vehicle picked up from your driveway. Available in Ontario and Nova Scotia only.	Compare	loading Fetching your data...

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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. You can 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 allow you to directly transfer your car loan into someone else’s name. That person could be a friend or family member who’s willing to pay off the debt for you, or the new owner of the car who plans to finish paying off the loan. Not all lenders allow you to transfer a loan to another person, so if you are considering this, contact your lender first to explore the option.

If a lender allows loan transfers, keep in mind that the person you’re transferring the loan to will need to meet the lender’s minimum qualification requirements to be approved to take over the loan. It’s also a good idea to ensure that your name is completely removed from the loan documents, otherwise you may still end up being called upon to repay the loan if the transferee defaults on their payments.

5. Move your debt to a balance transfer credit card

If you’re struggling with monthly repayments or paying off a loan with an APR higher than 36%, you might save by moving it to a balance transfer credit card. This option might not be the best way to get out of a car loan if you have bad credit or low income, though. You could have difficulty qualifying for a credit card with a high enough limit or favorable rates.

Even if the credit card comes with a higher rate than your current car loan, you may be able to take advantage of a low APR promotional period — sometimes as long as 10 months. You’ll be responsible for minimum monthly repayments, giving you the flexibility to make your repayments fit your budget.

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, only use this option as a last resort — all of the added interest while you aren’t making repayments typically gets added to the loan balance, meaning 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 if repayments have become impossible to afford. This is sometimes called a voluntary repossession. Bringing it in rather than waiting for your lender to arrange for repossession often gives you more room to negotiate and take control of the situation. It also helps you save on 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.

Is returning a financed vehicle in Canada possible?

Unlike taking a t-shirt back to the store, returning a financed vehicle in Canada is much more complicated. Generally speaking, it’s not possible to return a financed car to a dealership. That is because as soon as you drive a vehicle off the lot, it loses value, which means the dealership would be at a loss.

One similar option to returning a financed vehicle in Canada is voluntary repossession. That occurs when you realize you can’t afford repayments on your car loan, and instead of waiting for your lender to reposes your car and send your loan to collections, you contact the lender directly 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 to pay penalty fees and any outstanding balance on your 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.

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

Ideally you can avoid having to worry about how to get out of a car loan that doesn’t work for you. Follow these 4 tips while searching for your next car loan to lock in the right one from the start.

1. 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.
2. 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.
3. 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.
4. 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 about common car loan scams and compare legit lenders.

Bottom line

There are several options for how you can get out of a car loan, even if it’s upside down. If you find yourself behind on repayments, reach out to your lender as soon as possible to discuss your options like refinancing or trading in your vehicle.. Learn more on managing different types of debt – including car loans, credit cards, student loans, mortgages and personal loans – in our comprehensive guide here.

Frequently asked questions about how to get out of a car loan

• I can't afford my car payment, what are my options in Canada?

  If you find that can't afford your car payment, you have several options. If it is a temporary issue, you can look into one-time emergency funding for small loan amounts. Check our full guide to emergency loan options in Canada here. If you consistently have trouble affording your car payment, it may be time to explore ways of getting our of your car loan altogether using one of the methods outlined here.

• Can I pay off my car loan early with a lump-sum payment?

  Yes, at any point over the course of your car loan term you can pay off the loan with one lump-sum payment. But some lenders will charge you an early repayment fee worth the total amount of interest of the full loan term. If a lender does that, you may not end up saving any money by paying off your loan early.

• Can I cancel a car loan?

  Generally no, though 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.

• Does voluntarily returning my car to my lender show up on my credit report?

  Yes, it will show up on your credit report as a voluntary surrender, along with any remaining balance you still owe on it. While it can hurt your credit score, it may not have as large of an impact as a repossession.

• Can I return a car after signing the papers?

  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 (in which you can change your mind about the purchase and get a refund), some might offer it anyway. After that period is up, your only option is reselling the car.

  If your dealership has a return policy, ask to have a copy in writing before returning your car. And don't let pushy sales tactics force you into making a premature decision – you have a right to hold off on making a purchase until you're comfortable.