How Can You Return a Car You Can’t Afford?

A record 15.7% of drivers pay more than $1,000 per month in car loan payments, according to Edmunds.^[1] But you aren’t alone if you’ve fallen behind on car payments. High-interest rates and ongoing supply chain issues have made it harder for drivers to make their monthly payments.

You have options if you can no longer afford your car payments. Every driver’s financial situation is different, so weigh your options and choose the one that works for your circumstances.

Here’s what you need to know about returning a car you can’t afford.

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Can you return your car if you can’t afford the payments?

Most people have experienced buyer’s remorse at some point. You might have made a hasty purchase and then soon realized your mistake. The Federal Trade Commission (FTC) offers a “cooling-off” rule to help buyers in some of these situations, allowing them to cancel certain purchases within a three-day window.

Unfortunately, this cooling-off rule doesn’t apply to vehicle purchases.^[2] You should always ask your dealer for clear financing terms up front and avoid agreeing to a deal you can’t afford.

Buying your vehicle after a misleading sales process is one exception that might enable you to return your car. A 2022 FTC proposal would help consumers recover funds if the seller overcharged them or used bait-and-switch sales practices. You can call the FTC’s Consumer Response Center at 1 (877) 382-4357 if the seller misled you during your vehicle purchase.^[3]

Dealer return policies

Always ask your car dealer for its return policy in writing, then read it carefully. In most cases, this policy will simply state that all sales are final. You can’t recover your deposit after signing a contract unless you can somehow provide proof of a fraudulent sales process.^[4]

If you do buy a car you can’t afford, you still might have options. Speak to your lender about potentially refinancing your loan. You can potentially negotiate new payment terms that better align with your budget.

Lemon laws

Sometimes a car is defective, no matter how many times you try to repair it. That’s why many states have passed “lemon laws” to allow drivers to turn in their car for a refund if they try to repair it a number of times without success. Most states consider a car a lemon after four unsuccessful attempts to repair a specific defect.^[5]

Lemon laws vary by state. While almost all states have lemon laws covering new cars, fewer states cover used cars. The BBB National Program website provides information on lemon laws by state that you can consult.^[6]

Why you should understand your options if you can’t afford your car

Call your lender as soon as you realize you can’t afford your car payments. If you wait too long, you increase your risk of vehicle repossession, which can negatively affect your credit score for years.

Reaching out to your lender might feel overwhelming or embarrassing, but you should remember that your lender never wants to see you default on your loan. Your lender will lay out a few options. Assess your financial situation and driving needs before choosing an option.

You might find you can afford your car payments if you refinance your loan and cut some discretionary expenses. Or you may decide you don’t need a car if you can get around through other means of transportation.

Option 1: Refinance the car loan

You can potentially refinance your loan by finding a new lender that can offer better terms. This could involve pushing the missed payment to the end of your loan or extending the loan term. You could also refinance to pay smaller amounts more often.

Refinancing can lead to a lower interest rate, but you may end up paying more interest overall if you extend the loan term. Many finance companies also include additional charges, such as refinancing fees. Some drivers have also seen their credit scores temporarily decrease after refinancing a vehicle.

Auto loan refinancing scams are common, so you should always make sure you work with a credible loan servicer and ask for the refinancing terms in writing. If the company asks you to pay hundreds of dollars in enrollment fees up front, it may be a scam. Report potential fraud to the FTC's website.^[7]

Option 2: Sell the car

Selling your car can get you out from under unaffordable car payments, but it takes some work. You first need to determine your car’s market value. To do so, you should consult information from Kelley Blue Book, Edmunds, or the National Automobile Dealer’s Association (NADA).^[8]

Then, determine how much you still owe on your car loan. If the amount owed on your loan exceeds the car’s market value, you need to pay off the remaining loan amount after selling your car. You could also find that your car’s market value exceeds the loan amount. You can use this balance to buy a new, more affordable car.

Decide if you want to sell your car back to the dealership or to a private buyer. Working with a dealership takes less time and effort, but you might earn more by selling privately. Selling your car shouldn’t affect your credit score as long as you promptly pay off the remaining loan balance.

Option 3: Surrender your car for voluntary repossession 

You can call your lender and let it know you can’t pay your car payments — and don’t want to refinance — which will put your car up for voluntary repossession. This is a voluntary surrender of your car to your lender. Your lender will then sell the car. If the sale price is less than your remaining loan amount, you still need to pay off the loan difference and any impound fees.

Voluntary vehicle repossession allows you to tell your lender when and where you want to surrender your vehicle. Clear any private possessions out of your car before the towing company arrives.

Voluntary repossession will negatively affect your credit score for five to seven years. Involuntary repossession has an an even greater effect on your credit score, so you should reach out to your lender about repossession before it’s too late.^[9]

Option 4: Trade in the car

Car dealerships will usually allow you to sell your car back to them. You can then put the funds toward the purchase of another car in their inventory. Vehicle trade-ins are a good option if you’re behind on payments but need a replacement car. Trade-ins enable you to choose a cheaper option relatively quickly.

Start the process by determining your car’s trade-in value using a resource like Kelley Blue Book, Edmunds, or the NADA. Then, shop around for a local dealership willing to take your car for its trade-in value. You can also handle the deal yourself through a trading website.

If your remaining loan amount exceeds your car’s trade-in value, your dealership may roll that remaining balance into your next loan. Ask for clear financing terms from your salesperson in writing to make sure the costs and conditions are fair.^[10] A trade-in won’t affect your credit as long as you eventually pay off any remaining loan balance in full.

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Option 5: Lease buyout or transfer

Most auto leases have a clause that enables you to buy your car outright at any point during the lease. Your contract signed at the beginning of the lease should include the buyout price.

If you have the money and want to get out of monthly lease payments, you can buy the car and then sell it. Buying the car will require some initial cash, so this option may not work for people unable to make payments.

You might want to try a lease transfer if you can’t make your lease payments. Transferring your lease to another driver means you’ll no longer have to make monthly payments. Read your lease terms first to make sure you can transfer the lease. Transferring your lease will save you from the credit damage that comes with missing lease payments.

What not to do if you can’t afford your car

Drivers should avoid the options below, which could severely affect your credit score or lead to further financial strain.

• Involuntary repossession: You would lose your car without getting to set the terms for the repossession, such as the time or location. You’d also face high impound fees that you can avoid if you opt for a voluntary repossession. Involuntary repossession stays on your credit report for up to seven years.

• File for bankruptcy: Filing for bankruptcy can negatively affect your credit score for seven to 10 years. You could struggle to qualify for loans or credit cards during that period. Generally, opting for one of the options above hurts you less financially.

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