So, you have a new car. After a few days since bringing it home, you realize that you’ve entered into a bad car loan deal. Or you no longer think the car fits your needs or you suddenly experience financial difficulties. For some reason, you feel like you want to back out. “How do I get out of a car loan?” you wonder. Can you even do that?
Let us consider a few scenarios on the possible questions you have when you want to cancel your car loan agreement.
Can You Cancel a Car Loan When You Change Your Mind?
The short answer is no. There’s normally no buyer’s remorse in the car loan contract nor a cancellation clause. The federal “cooling off” rule, which gives you three days to cancel a high-pressure purchase, doesn’t apply to car sales. So, it’s better to do proper research and consider all options before entering into a loan agreement. Once you signed the deal, the car is yours. But it’s not entirely impossible to back out, and you have options.
You may not entirely cancel the car loan contract, but you can do a few other things that may reference help your financial situation. However, they have consequences.
How Do I Get Out of a Bad Car Loan?
Being stuck with a bad car loan or experiencing sudden financial difficulty that limits your ability to repay that loan is not a good thing to go through. Here are some options you can turn to when worse comes to worst.
1. Refinance Your Car Loan
When you know that your current car loan is not the best for you, one solution you can take is to refinance it. Refinancing means applying for a new loan to replace the current one, usually with lower monthly amortization and interest rate.
The downside, however, is that you have to stick with your current loan for at least one year before you can refinance it. You also need a good credit score to qualify. More often than not, it’s best to refinance with a new lender, although it’s not impossible to refinance with your current one.
While you can’t refinance your car loan immediately, you can cancel add-ons that you bought upon signing the deal. These include an extended warranty, gap insurance, tire and wheel protection, and prepaid maintenance plan. You may not recover the full price you paid, but you can get a refund on a portion of it and cancel the coverage.
Meanwhile, if you purchased other products that were installed in your car, such as a theft alarm system, paint sealant, or window tints, you will not be able to cancel them and get a refund.
3. Choose a Voluntary Repossession
If you prefer to break your contract, you can opt for a voluntary repossession. It means that you’ll return the car to the dealership rather than wait for them to begin the repossession process when you don’t settle your monthly repayments. The dealer will sell the car, but you’ll have to pay any remaining amount from the original loan you signed.
NOTE: You need to be very careful with this option, however, because it’s still a repossession. It will reflect on your credit report and hurt your credit score.
It’s your car already, so you can sell it privately if you want. You can set the price, and in some instances, you can ask for more than the amount of your car loan. So, you can use the money to pay off your car loan and still have some money left.