So, you’ve made the leap and bought that shiny new car, only to realize that the monthly payments are more than your budget can handle. You’re not alone. Many buyers find themselves in a similar predicament, and there are viable solutions. This article will offer insightful and practical advice on how to return a car you can’t afford.
Understanding the Predicament
Before we dive into the solutions, it’s crucial to understand the nature of the problem. If you can’t afford your car payments, it typically means that you’re “upside-down” or “underwater” on your car loan—owing more than the car is worth. Recognizing this situation early can save you from compounded financial problems down the line.
Revisit Your Financing
Refinancing: An Attractive Option
A viable option for some might be refinancing. This essentially means replacing your existing loan with a new one, hopefully with a lower interest rate and a longer term. This could help reduce your monthly payments and bring them within your budget. However, remember that a longer term also means you’ll be paying more in interest over time.
Voluntary Repossession: A Last Resort
If you’re unable to keep up with your payments and can’t refinance, a voluntary repossession could be considered. In this case, you voluntarily give the car back to your lender. While this will have a negative impact on your credit score, it could be less severe than a forced repossession.
Trade-Ins and Selling Your Car
Trading In: Swap it Out
If you find yourself upside down on your auto loan, consider trading in your car for a more affordable one. Car dealerships might be willing to roll over your old loan into a new one, effectively transferring the negative equity. However, this approach should be taken with caution as it could potentially lead to a cycle of debt.
Selling Your Car: Cash It In
Another feasible option is selling your car privately or to a dealership. Depending on the value of the car and the outstanding loan, this may help cover a significant portion of your debt, if not all. Remember that selling your car won’t eliminate your debt, but it can make it more manageable.
Leverage Online Car Buying Services
Companies like Carvana and CarMax can provide quotes for your car, often offering more competitive rates than traditional dealerships. These companies operate online, making the process simple, and in some cases, they may even handle the paperwork for you.
Frequently Asked Questions
1. Can I Return a Financed Car Back to the Dealer After a Year?
In general, dealerships don’t have a “return policy.” Once the paperwork is signed, the car is yours unless the contract specifies otherwise. Some states require a “cooling-off” period that allows you to return a car within a few days of purchase, but this doesn’t typically apply after a year. Always read your contract thoroughly before signing to understand the terms.
2. Is it Possible to Return a Financed Car within 30 Days?
Once again, this depends on the dealer’s policies and the terms of your contract. Some dealerships may offer a limited return window or a “money-back guarantee,” but these are not standard. It’s crucial to understand the dealership’s return policy before making the purchase.
3. What Happens If I Voluntarily Surrender My Vehicle?
If you’re unable to make your car payments and opt for voluntary repossession, the lender will sell the car, often at an auction. If the sale price is less than the balance of your loan, you’ll be liable for the difference or “deficiency.” Additionally, voluntary repossession will negatively impact your credit score.
4. How Can I Sell My Car Back to the Dealership if I Still Owe?
If you want to sell your car back to the dealership, you’ll first need to find out the payoff amount, or how much you still owe on the loan. The dealership may buy the car for the payoff amount or more, but if they offer less, you’ll need to pay the difference. Remember that dealerships aim to buy at the lowest possible price, so it might be more beneficial to sell privately or to an online service.
5. What Happens If I Can’t Afford My Car Anymore?
If you can’t afford your car payments, it’s essential to take action quickly to avoid damaging your credit score. Options include refinancing your loan, selling your car, trading it in for a less expensive one, or in extreme cases, opting for voluntary repossession. It’s a good idea to reach out to a financial advisor or your lender to discuss your options.
6. Can I Return a Financed Car with Damage?
The ability to return a financed car depends on the dealer’s policy and your contract’s terms. If you’re allowed to return the car, any damage could result in additional charges. Dealerships will assess the car’s condition upon return and may charge you for any damage beyond normal wear and tear.
7. What Are the Consequences of a Vehicle Repossession?
Vehicle repossession, either voluntary or involuntary, can significantly impact your credit score, making it more difficult to secure future loans or credit lines. It will stay on your credit report for seven years. Additionally, you could still owe money if the sale of the car doesn’t cover your loan balance.
8. Can I Trade In My Car If I Still Owe Money On It?
Yes, you can trade in your car even if you still owe money on it. In fact, many people do this. However, if you owe more on the car than it’s worth, the remaining loan balance (the “negative equity”) could be rolled into your new loan, meaning you’d owe more on the new vehicle.
9. Can I Refinance My Car Loan If I Can’t Afford The Payments?
Refinancing your car loan is one possible solution if you’re struggling with payments. Refinancing could allow you to secure a lower interest rate or extend the loan term, thereby reducing your monthly payments. However, it’s essential to note that extending the loan term means you’ll pay more in interest over time.
10. How Can I Negotiate With My Lender If I Can’t Afford My Car Payments?
If you’re having trouble making your car payments, it’s best to communicate with your lender as soon as possible. They may be willing to negotiate a modified payment plan, especially if your financial hardship is temporary. Keep in mind, though, that this will depend on the lender and your specific situation.
11. Can I Sell My Car Privately If I Still Owe Money On It?
Selling a car privately when you still owe money on it can be a bit more complicated, but it’s doable. You’d need to pay off the loan in full before transferring the title to the new owner. This could involve using the buyer’s funds to pay off the loan and then transferring any remaining money to you.
12. What Is a ‘Yo-Yo’ Car Financing Scam?
A “yo-yo” car financing scam occurs when a dealer allows a customer to leave the lot with a vehicle before the financing is fully approved. The dealer then calls back days or weeks later claiming the financing fell through and requires the buyer to agree to a higher interest rate or other less favorable terms. This is why it’s vital always to ensure your financing is finalized before taking possession of a vehicle.
13. Can Bankruptcy Help Me Get Out of an Unaffordable Car Loan?
Filing for bankruptcy may help you eliminate or reduce your car loan debt under certain circumstances. However, bankruptcy should be considered a last resort due to its long-lasting and severe effects on your credit. Always consult with a qualified attorney or financial counselor before making such a critical decision.
14. Can I Transfer My Car Loan to Someone Else?
While not common, some lenders may allow you to transfer your car loan to another person. However, that person must qualify for the loan based on their credit and income. If your lender doesn’t allow loan transfers, another option might be to have the new person secure their own financing to pay off your current loan.
15. Can I Return My Car to the Dealer and Cancel the Loan?
In general, you cannot return a car to the dealer and cancel the loan once the sales contract is signed. However, some states have “cooling-off” periods or laws that allow consumers to cancel contracts within a certain timeframe. It’s crucial to know the rules in your specific location and read your sales contract carefully.
16. Can I Cancel My Extended Warranty and Use That Money to Pay Off the Car?
If you’ve purchased an extended warranty on your car, you may be able to cancel it and receive a prorated refund, which could then be used to pay down your car loan. Check the terms of your extended warranty contract to see if cancellation is possible.
17. What Happens If I Just Stop Making My Car Payments?
If you stop making payments on your car loan, the lender can repossess the vehicle. This would negatively impact your credit score and could lead to additional fees. If the sale of the repossessed vehicle doesn’t cover your loan balance, you could be sued for the difference. It’s always best to communicate with your lender if you’re having trouble making payments.
18. Is It Worth It to Downgrade My Car to Reduce My Loan Amount?
Downgrading your car could potentially reduce your loan amount if you trade in your current car for a less expensive one. However, if you have negative equity in your current vehicle, that amount could roll into your new loan, potentially negating any savings. Carefully consider your options and do the math before deciding to downgrade.