How to Get Out of Your Car Loan
There are multiple reasons why a person might want to get out of their car loan early and there are several paths that you can choose...
Whether your loan payments are exceeding your budget, the vehicle no longer suits your needs, or your life circumstances have changed, getting out of your car loan doesn’t have to be a difficult process.
You have options. Let's discuss...
1. Make a lump-sum payment
If you have the money and want to get out of the loan as soon as possible, paying off your vehicle loan in one lump sum is probably your best option.
However, this option comes with an obvious price. In some car loan agreements, there’s a section that explains any penalties associated with an early payoff. This payoff amount will depend on what you and your lender agreed to when discussing the terms of your contract. Therefore, you will have to pay the remaining loan principal plus the contracted payoff penalty, if there is one.
Contact your lender and request a payoff quote, you typically will have 30 to 90 days until that quote expires. Don’t request a payoff quote until you’re ready to pay back the entirety of your loan. Otherwise, you may breach the protocol that your lender has in place for an early loan exit, and it could end up costing you more in the long run.
If you decide to get out of your car loan early by paying it all back at once, check your credit report to ensure that the loan is marked as closed on your file.
Read more: Should I Pay Off My Car Loan Early?
If you're thinking about ending your car loan simply because the monthly payment is too high, refinancing is worth looking into. If your credit has improved since you originally signed your auto loan agreement, it is possible to get a lower interest rate, extend the loan term, and even add a co-signer.
Another strategy to consider if you want to get out of an expensive car loan is trading in your vehicle for something that's better suited to your budget.
Dealerships are very familiar with the trade-in process and will generally be happy to help you if your loan history is adequate and the car is in good condition.
When you trade-in a vehicle with a loan, the dealer will ideally offer you enough for your trade-in that will allow you to pay off the loan balance. Then, you can start fresh with a new car, new loan, and hopefully a lower monthly payment. However, if you owe more on the car than it's worth (also known as being upside down), the dealer probably won't offer you enough to pay off the entire loan. The remainder of what you owe will roll over to your new car loan.
Therefore, if you're trying to trade your car to get a lower monthly payment, trading in your vehicle might not be a great idea if you're currently upside down on your car loan. You may want to wait until you owe less than the car is worth.
4. Sell your car privately
Many people choose to sell the car for enough cash that will allow them to pay off their car loan. If this option intrigues you, the first thing you should do is research online regarding the value of your car given its year, make, model and mileage. Canadian Black Book should be your first port of call here.
It’s your responsibility to pay off the remainder of your loan. But you might be able to transfer your loan to the buyer. Contact your lender or bank to discuss your options.
When selling privately, it’s your job to ensure that repairs are made beforehand. Visit your mechanic to arrange any repairs, and get the vehicle detailed. If there are any repairs that the mechanic suggests but you don’t get around to, make sure that you disclose this information in the vehicle’s description. It might also be a good idea to include a vehicle history report so that the potential buyer can easily see if the car had any trouble in the past.
Remember to leverage all of the free online listing resources like Kijiji, Craigslist, and Facebook Marketplace, and share on your social media to reach as many people as possible and speed things up.
Trade in your car with Canada Drives
With Canada Drives, you can be confident of getting a real offer for your trade-in. We also make it easy to buy and finance a new car while clearing the balance on your existing auto loan—all online! Get an instant quote for your current vehicle and see what you're eligible for today!