How to Get Out of a Car Loan You Can't Afford
Selling, refinancing, trading down, or working with the lender can each help, depending on how much you owe versus what the car is worth. Here's how to sort the options.
Quick answer
Start by comparing the payoff amount with the car's market value. If the car is worth more than you owe, selling is often the cleanest exit. If you owe more, options include refinancing, paying down the gap and selling, or asking the lender about hardship options. Avoid simply stopping payments; repossession usually leaves you owing money and damages credit.
Options by situation
| Situation | Options to consider |
|---|---|
| Car worth more than payoff | Sell privately or to a dealer; pay off the loan; buy a cheaper car with the equity |
| Car worth a little less than payoff | Save to close the gap, then sell; refinance to lower the payment |
| Car worth much less than payoff | Refinance if rates are lower; ask the lender about deferment or modification; keep the car longer |
| Temporary income drop | Ask the lender about hardship programs before missing a payment |
Refinancing
A lower rate or longer term can reduce the payment. A longer term can raise total interest and extend negative equity. See car loan length.
Avoid these
- Rolling negative equity into a new loan: it makes the next loan bigger than the next car is worth.
- Voluntary surrender or repossession: the car is sold at auction, and you may still owe the difference plus fees.
- Dropping insurance: lenders require it, and force-placed coverage costs more.
If you're upside down, also see gap insurance.
The takeaway
Know your payoff and your car's value first. With equity, sell; without it, refinance, close the gap, or talk to your lender before falling behind.
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