Car payments crushing you? Here's how to get out of a car loan you can't afford

A layoff, illness, unexpected repair or other financial hardship could easily cause you to be unable to afford your car payments.

In many cases, it's just a short-term setback. But if you're continuing to struggle with your monthly payments, it might be time to get out of the loan.

There are several ways to legitimately end a car loan that don't involve defaulting, which could tank your credit and result in the car being seized by the lender.

If you're experiencing financial difficulties, your lender may be willing to change your payment schedule. The earlier you reach out, the better — and lenders are more likely to agree if you have a plan to get back on track.

Changing the terms of your loan will typically cost you more in the long run, but it could be helpful if you're just facing a temporary hardship, like an illness or a missed paycheck.

Your lender may be willing to adjust your payment date or defer one or two payments. The loan will still accrue interest, but it could help you avoid missing more payments or defaulting on your loan, which could wreck your credit score and lead to repossession.

According to the Consumer Financial Protection Bureau, some lenders only let borrowers defer the principal on their payment and still require them to pay the interest.

If you've already fallen behind for several months, a payment plan could help you catch up. It will only give you breathing room, however. You could end up having to make both your regular payments plus a portion of the missed payments.

If you're juggling more than car payments, National Debt Relief works with customers with $10,000 or more in unsecured debt. Debt relief companies don't handle secured debt like auto loans or mortgages, but they can negotiate reduced balances on your credit card bills and other outstanding debts.

That can save you money and free up more funds to pay down your car loan.

If your circumstances have changed since you initially took out the loan — like your credit score increased — you may qualify for a lower interest rate by refinancing your car loan. Adding to the length of your car loan could also lower payments, though it would mean paying more in interest over time.

Make sure you find the best deal by getting quotes from your current lender and other companies.

Some lenders offer prequalification, which could help you estimate your monthly savings without hurting your credit score with a hard inquiry. The car loan marketplace Autopay allows borrowers to prequalify online and refinancing loans are available to those with a credit score of only 550.

Autopay says its refinancing customers save an average of $105 a month. Loans start at 4.67% APR, considerably lower than the industry average, which was 7.1% for new cars in February 2024.

Capital One Auto Finance also lets borrowers prequalify online without a credit check— and approval decisions can be made in under 24 hours. Interest rates start at 4.1%, with terms ranging from less than 12 months to 84 months.

There's no application fee and Capital One will approve borrowers with credit scores as low as 540 or who want a co-signer. There is a $7,500 minimum for refinancing loans, though, and your original loan can't be with Capital One.

Selling your car won't make your loan disappear, but you can use the money to pay off your balance. Contact your lender to see how much you need to fully satisfy your loan, then look up what your car is worth on a vehicle valuation site like Kelley Blue Book or Edmunds.

Should your car be worth less than the payoff amount (a situation known as an upside-down loan) you'll need to cover the difference. If you don't have the cash on hand, you may want to look into a personal loan with a lower interest rate.

By using non-traditional factors like employment and education to judge creditworthiness, lenders on Upstart consider borrowers with credit scores as low as 300. And Upstart says a majority of approved loans are funded the next business day.

You can get a same-day decision for a Discover personal loan, and pay no origination or early payoff fee. Loans start at $2,500 and Discover's fixed interest rates start as low as 7.99%. Borrowers must have at least a good credit score (670 or better) to be approved.

If you're unable to make payments and don't see your situation changing, a voluntary repossession (sometimes called a surrender) may be your best choice. It will impact your credit score similarly to an involuntary repossession and stay on your credit report for up to seven years.

But future lenders may view it a little more favorably when they review your credit history, according to Experian. And you'll avoid the stress of having your vehicle seized, as well as the fees associated with it.

If you agree to a voluntary surrender, you would turn your car over to your lender, who would sell it and put the money towards your payoff amount. You'll be responsible for any amount the sale doesn't cover or the balance could go to collections. If your lender forgives the outstanding balance, it will be taxed as income.

If you're already struggling with monthly car payments, paying off the loan in full might seem like a pipe dream. But it's a quick way to save on interest, protect your credit score and reduce your debt-to-income ratio. And while on-time loan payments help bolster your credit score, that's not a consideration if you're making late payments or at risk of defaulting.

You might consider taking out a personal loan with a lower APR or asking a friend or family member to lend you the money.

See if your lender charges a prepayment penalty and if it's worth paying it to get out of your auto loan.

If you're struggling with lease payments, the options are somewhat different.

Return the car

The simplest way to get out of a car lease is to return the car to the dealer. You'll have to pay an early termination fee, usually a set dollar amount plus the difference between the balance on your lease and the car's market value. Be sure to calculate whether the fee would be more than your remaining monthly payments.

Transfer the lease

If you can't afford the termination fee, you can also transfer the lease to someone else if the terms of your lease contract permit it.

Sites like Leasehackr, Swapalease and Leasetrader will let you list your vehicle and lease terms to find someone to take it over. There may be a charge but it's usually far less than a termination fee. Check the terms of your contract to see if you'd be held responsible if the new lessee didn't make payments on time.

Roll over payments

You might be able to roll over your remaining payments into a lease on another car. It will increase your new monthly payments, however, and you could end up paying more than the new car is worth.

Buy out the lease

Depending on your contract, you may be able to buy out the lease and sell the car. If the vehicle is worth less than the residual value of what you paid, however, it might not be worth it financially.

If you're struggling with a car loan you can't afford and getting an extension or deferment won't help, there are ways to get out of your current car loan. Some, like refinancing, will allow you to keep the car, while others, like voluntary repossession, will mean giving up your vehicle.

At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every auto article is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of auto loan products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics.

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