How to Get Rid of Car Payments For Good

What options are available?

Car - For Sale By Owner
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Getting out from under a troublesome auto loan or lease can be a challenge. Perhaps you no longer can afford the vehicle or your needs otherwise have changed. Ideally, the car is worth at least as much as you owe on it and you're able to sell it. However, that's not always the case.

In the event that selling the car is not a realistic option, you may have to consider alternatives including refinancing, trading it in for a vehicle with lower payments, asking someone else to take over the payments, or even going so far as voluntary repossession.

Selling the Vehicle

You might be able to sell your car even if you still owe money on it and pay off the loan with the sales proceeds. That approach is the most effective way to limit your risk and get rid of the required payments.

If you have a leased vehicle, selling it is more complicated. Many leases offer an option to buy the vehicle. If the vehicle is in good shape, it's possible you could take this option, then turn around and sell the car for enough to cover what you owe on it.

It might also be possible to officially transfer responsibility for the lease to somebody else. Be sure to check the terms of your lease to make sure this is allowable. Several websites offer services to facilitate lease swaps, but do plenty of research to ensure that you work with a reputable business. If you work with a lease transfer service, verify that your responsibility for the vehicle is 100% eliminated.

Refinancing the Loan

Depending on your needs, refinancing your auto loan might provide the relief you need. Especially if your credit has improved since you bought the vehicle, a new loan might feature a lower rate and lower monthly payments.

When you refinance, it might be tempting to go for the lowest payment possible. To do that, you’d choose the longest loan term (five years or more, for example), adding those years on top of the time you’ve already spent paying down the loan. While a low payment seems appealing, stretching out the loan will cost you more over the long term. Starting a brand new loan means you reset the payment schedule. As a result, you start over in the early years of a loan, when interest costs are at their highest, and you barely make a dent in the loan balance.

Trade for Another Vehicle

If you want a different vehicle, you probably can trade in your existing vehicle, and add any unpaid loan balance to your new loan’s balance, but that’s rarely a good idea. Just like stretching out a loan, you’re just getting an oversized debt for your new car.

Trading in for a less expensive vehicle is a better strategy for saving money.

Repossession

If no other options work and you need to get out of the loan, it may be best to hand over the keys to your lender. If you voluntarily surrender the vehicle, you won’t pay the full costs of repossession—but you’re still liable for any unpaid balance, and your credit​ scores will suffer. Still, you can free up cash flow each month and begin the process of moving on.

Speak with a credit counselor for individualized advice before you stop making payments or surrender your vehicle.

Have Somebody Take Over Payments?

With any loan, whether you own a house or you’re making payments on a truck, it seems like a great idea: Find somebody who’s willing and able to make the required payments, and walk away from the deal. The buyer benefits from low up-front costs and predictable payment. The lender gets to keep collecting payments as if nothing happened. Most importantly, you get the freedom to move on, so it seems like everybody wins.

Unfortunately, it’s more complicated than that.

You are still responsible for payments until you completely satisfy the debt (and any agreements) with your lender. If you applied for a loan, your credit is on the line, and you’re responsible for paying off the debt. That risk does not transfer to somebody who takes ownership or possession of your car and starts making payments.

Article Sources

  1. Federal Trade Commission. "Financing or Leasing a Car." Accessed April 4, 2020.

  2. Federal Trade Commission. "Vehicle Repossession." Accessed April 4, 2020.