How to Return a Car You Can’t Afford

When you take out a car loan, your bank expects that you’ll make your payments on time every month. But sometimes, life gets in the way, and you can’t keep up with the costs. When that happens, the most important thing to do is act fast. Here’s how to return a car you can’t afford, whether it’s financed or leased.

If you’re struggling to make payments, lowering other costs of car ownership — like auto insurance — can help. One simple step is to look for a cheaper rate on car insurance. Search and compare car insurance policies to see how much you can save.

Can I return a financed car?

Financing is a great way to get into a new vehicle or buy a used car without the high up-front cost. But what if you get in over your head? If you change your mind or can’t afford the car payments, you may be wondering if you can return the car you just bought.

Generally, being able to return a car when you can’t afford your car payments depends on where you got your loan. For example, you can only return a financed car if the finance company agrees to accept the vehicle back.

Dealer Return Policies

Most dealers don’t have a policy that lets you return a vehicle after buying it. However, a few exceptions exist. You might have a case if the car salesperson didn’t hold up their end of the deal or if you suspect fraud. But if you have buyer’s remorse, you’ll need to plead your case. And it’s up to the dealer to decide whether to let you out of the deal.

Car dealers are usually willing to work with you, especially if you recently made a car purchase. After all, they want to keep their customers satisfied. But reversing a sales agreement is more than a minor inconvenience, and no law requires them to allow it.

Lemon Laws

Contrary to popular belief, there is no “cooling off rule” that lets you cancel the transaction after buying a car. But you may find some relief in your state’s lemon law. A lemon law provides financial protection for buyers who discover their vehicles are defective. You may get a refund or a replacement vehicle if repair isn’t possible or if the defect is too severe.

All 50 states have lemon laws for new vehicles, but only seven states apply the law to used cars: California, Connecticut, Massachusetts, Minnesota, New Jersey, New Mexico, and New York.

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Why You Might Want to Return a Vehicle

Many people may want to return their current car because they can no longer afford the monthly payments, but there are other reasons, too. For example, you might feel like you got ripped off or have simply changed your mind — buyer’s remorse is common with larger purchases.

Mechanical problems or defects are serious issues that can lead you to take your car back to the dealer. If you’re in this situation, reach out to an attorney to make sure you understand how lemon laws work in your state.

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Penalties to Watch for When Returning Your Financed Car

Financial troubles can come out of nowhere — like with a layoff or too much other debt. It’s frustrating to struggle to also make your car payment. But you might run into penalties and drawbacks when getting rid of your financed car.

• Your loan agreement may include cancellation fees if you want to get out of it before the end of the term.

• Your credit score could drop, especially if you’ve missed a few payments or you opt for a voluntary repossession.

• You may owe a balance after returning your vehicle if the car loan exceeds the vehicle’s value.

But all is not lost — you have options to reduce the financial burden of returning your car.

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How to Return a Financed Car to the Dealer

If you can’t afford your car payments, you may worry about what happens when it comes time to return your vehicle. It may seem like repossession is inevitable, but you might have other options. Here’s how to make sure that returning your car is as painless as possible.

Talk to Your Lender

If you’re struggling to make payments on your car or you’ve just lost your job, don’t be afraid to talk with your lender about an affordable repayment plan. Banks, credit unions, and other lenders may be willing to work with you, especially if you’ve been making payments on time.

Surrender Your Car

When monthly car payments become too much and you have no other options, you may choose to surrender your vehicle. When you surrender the car, you’re doing a voluntary repossession. Your credit will take a hit, but it won’t be impacted as much as with an involuntary repossession.

Contact your lender to arrange a time and place to surrender your car. Keep records of the details — when, where, and with whom you dropped it off. However, you won’t be entirely off the hook for car payments. It’s unlikely the vehicle will sell for what you owe, and you may need to take out a personal loan to pay off the difference (called the “deficiency balance”).

Trade In Your Car

You may be able to trade in your car to get out of hefty loan payments. This is a good option if you can get away with a smaller, cheaper car or no car at all. Get quotes from several dealerships before signing an offer. Keep in mind that you may end up with a deficiency loan balance if you owe more than the car is worth.

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What if I can’t return a financed car?

If you can’t return a financed car, don’t fret — you still have a few choices if you’re struggling with your car payments.

Refinance the Car Loan

If you can’t afford your car payments anymore, you may have some luck with a refinance. Refinancing your car loan simply means taking out a new loan to pay off your existing loan. It often opens the door to better terms, such as a lower interest rate or a longer repayment period. Both options can get you smaller monthly payments — which may help alleviate some of your financial burden.

Get a Cheaper Car Insurance Policy

Often, car payments aren’t the only thing stretching your finances. The overall cost of car ownership can drain your bank account. In that case, getting a cheaper car insurance policy can help lower your out-of-pocket expenses.

Your lender may have insurance requirements you must maintain. For example, many auto loans require you to carry full coverage on the vehicle. But you can (and should!) shop around and switch car insurance companies to get a better price. Ask about discounts your insurance provider may offer, and increase your deductible to save on premiums.

Sell Your Car

If the dealer won’t let you return the car, selling it can offer financial relief without a negative mark on your credit report. However, cars can depreciate quickly. You may not be able to sell it for the total loan amount you owe, and you’re responsible for paying the difference.

Get Someone Else to Assume the Car Payments

You may have the option for someone else to assume your car payments. An assumed loan is when the loan is transferred from one party to another. You’ll need to work with your lender to make it happen. Most lenders require the buyer to meet a minimum credit and income threshold before letting you pass the loan on.

Involuntary Repossession

Voluntary repossession is when you surrender your vehicle by turning in the keys. But involuntary repossession is also an option. It seems easy enough: you simply don’t make any payments, and eventually, your lender decides to repo the vehicle. But it can be a nerve-racking experience and cause a severe drop in your credit rating.

File for Bankruptcy

You might consider bankruptcy as a last resort if you’re deeply in debt and have high car payments on top of it. However, it isn’t an easy process. Filing bankruptcy is often complicated and can tarnish your credit for a decade. Consider other viable options, take a good look at your finances, and contact a qualified bankruptcy attorney before going down this path.

Can I return a leased vehicle?

Options for returning a leased vehicle aren’t as numerous as for a financed vehicle. But you have a few choices if you can no longer afford your vehicle lease payments, including returning it. You may also be able to:

• Transfer the lease to someone else

• Trade it in for a cheaper vehicle

• Sell it to the dealer or a private party

Be aware that you may be hit with early termination fees, even if you do a lease swap. You must also pay the remaining balance on the lease, and you’ll likely lose the down payment you made up front.

Deciding If Returning a Car Is Right for You

The decision to return a car you can’t afford is one you should make only after careful consideration. For some, voluntary surrender or repossession might be unavoidable. But look at other alternatives first, like extending loan terms, trading it in, or selling it.

If you decide to return your vehicle because you simply can’t afford it, make sure to talk with your lender about any fees or penalties before proceeding. Returning your car may seem scary at first, but it’s pretty simple once you get started — and it can free up your personal finances to give you some breathing room.

References

1. https://www.jdpower.com/cars/shopping-guides/used-car-lemon-laws. J.D. Power.