How to Get Out of a Car Loan You Can’t Afford

Learn how to minimize or eliminate car loans you can’t afford.
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Balances on car loans increased by $10 billion in the first quarter of 2017, according to the Center for Microeconomic Data's May 2017 report on household debt. The same report showed that 3.8 percent of loan holders were at least 90 days delinquent on their payments.

Delinquency negatively affects your credit score, which could impact other areas of your life. The good news is that affordable solutions are available, whether you need a way out because you've lost a portion of your income or discovered unexpected costs associated with your car loan.

Here are the steps you need to take to get out of a car loan:

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Step 1: Estimate Your Vehicle’s Fair Market Value

In order to determine how to get out of a car loan without ruining your credit, you first need to find the answer to the question "How much is my car worth?" Websites such as Kelley Blue Book can help you determine your car's market value. You'll need to input the make, model and mileage of your vehicle. Next, you can add any upgrade features your vehicle might have. Then, KBB will give you an estimate of what your car is worth.

See: Most (and Least) Expensive States to Own a Car

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Step 2: Sell Your Car

Once you find out how much your car is worth, you'll want to sell your vehicle if it's valued at a comparable or greater amount than the loan. recommends contacting the lien holder to discuss closing out the loan and obtaining the title to sign over to your buyer. Often, it's possible to complete this transaction right at the office of the lending institution.

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Step 3: Allow Someone Else to Assume Your Loan

When wondering how to get out of car loan without ruining credit or how to get rid of a new car, consider allowing someone else to assume the loan. A car loan transfer is an excellent option if you have negative equity in your car and you won't make any extra money by selling it. Contact your lender to see if another individual can assume your loan. That person will likely need to agree to a credit check and meet certain income-to-debt criteria for approval.

Related: How to Buy a Used Car That Hasn't Been Paid Off

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Step 4: Make Payments on Your Upside-Down Car Loan Until You Break Even

Having an upside-down car loan means the amount you owe on your loan is higher than the car's value. If the car that's giving you buyer's remorse won't net you enough money to pay off the loan when you sell it, then you'll want to keep making payments on the loan until you reach the break-even point. You can temporarily cut spending or even stop driving your car and cancel your insurance to create funds for vehicle payments. Once you reach your break-even point, you'll be able to sell the car and subsequently get out of the loan.

Step 5: Refinance the Loan
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Step 5: Refinance the Loan

Perhaps you'd like to keep your vehicle, but want to make the payments more affordable. In this case, explore getting a refinanced auto loan. The car refinance can be done through your current lender or through another finance company. When you refinance a car loan, you can lower your payments by extending the term of the loan or obtaining a lower interest rate. Wells Fargo and other banks, for example, offer auto refinance calculators you can use to get an idea of what your new payment would look like.

Step 6: Participate in a Car-Sharing Program
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Step 6: Participate in a Car-Sharing Program

If you're not interested in a car refinance, consider how to get rid of a car payment by signing with a car-sharing company. Car-sharing companies such as Turo allow individuals to rent out their vehicle to help pay their car payments and even pay off their loans ahead of schedule. Look for a car-sharing company that protects your vehicle with its own insurance while the vehicle is in use by another driver so that your personal insurance isn't affected.

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Step 7: Voluntarily Surrender the Vehicle

You also have the option to voluntarily surrender your vehicle if you can't pay your car loan. Doing this will affect your credit negatively, but it can look much better on your credit report than having your car repossessed, according to credit reporting bureau Experian. When you turn your vehicle over to the lender, the lender will then sell it. If there's a remaining balance, you'll be responsible for paying it. If you don't pay the difference, it will go to collections, which will also reflect negatively on your credit report. It's best to work out a payment plan with the lender for the remaining balance.

Before beginning any of these steps, you can contact your lender to ask for a forbearance. Doing this will give you a little bit of time to determine what your next step should be so that you don't make any hasty or emotional decisions.

Up Next: How Your Credit Score Determines Your Auto Loan APR


Keeping Up With the Joneses

It can be easy to fall into the trap of spending more to keep up with what your friends or colleagues are buying. "This can be applied to anything from buying a designer sweater when a sweater from Old Navy is just as good, agreeing to go on a group trip you can't afford or buying a bigger house when the house you have is just fine," Bodge said.

But keeping up with the Joneses can be a toxic habit if you're spending more than you can afford. Figuring out what you value most and setting your own financial goals to align with what's important to you might help you resist the urge to spend money just to impress others.

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About the Author

Alicia Bodine

Alicia Bodine is a New Jersey-based writer specializing in finance, travel, gardening and education. With more than 13 years of experience, her work has appeared in, Livestrong, eHow, USA TODAY, GlobalPost, and wiseGEEK.

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