How to Get Out of a Bad Car Loan?

Your guide on getting out of upside-down car loans.

Car loans are no joke. Especially if you have been stuck in a car loan that you have been making monthly payments for with no such benefit provided to you. In situations like such, it is easy to get frustrated and want out.

But first we have to find out what exactly is a bad car loan and does yours qualify as a bad car loan?

The easiest answer to that is any car loan that you have difficulty being able to afford or you are paying more than you should be. In circumstances like these, you cannot help but wonder if there is any way you could be paying less each month and still keep your car.

Well it is not completely unheard of. Many people want to know the answer to that question. But in order to determine whether you can pay less each month than what you are paying right now, you have to take a quick look at your loan which is made up of three main parts:

  1. Principal, which is the amount of money you borrowed excluding interest in order to buy your car.
  2. Interest, which is charged by the bank or lender for loaning you the money.
  3. And term, which is the amount of time you have in order to repay the loan.

From these three parts, the term and interest is adjusted to reduce your monthly payment. But to do that, you have to create a new car loan which is a process called auto refinancing and can help you find out how to get out of a car loan you cannot afford.

How to Get Out of a Bad Car Loan?

Review your car loan.

In order to find out whether or not refinancing will work for you, the first thing you need to do is find your sale contract or payment stub. This will help you find the interest rate you are being charged and the term of your car loan contract to find the number of months remaining on the loan.

You can choose to call your bank or lender, simply give them your loan number and they will tell you this information. They can also tell you the remaining balance of your current loan.

Once you know what the current interest rate you are paying at, you can check your credit score to find out what rate you could now qualify for. And in order to get the current interest rate you qualify for, you need to contact several lenders for a quote. If you want a lower interest rate, you will be able to lower your monthly car payment to stop paying so much.

How much can you save?

To find out how much you can save just by refinancing, you can use an auto loan refinance tool that requires you to input a desired loan term. This desired loan term has to be the same as your remaining loan term.

Please note that this is the number of months you have left on your loan and not the length of the loan from the beginning when you borrowed it. This refinance tool will calculate the interest rate you could get and provide a rough estimate on how much your payments could decrease just by that interest rate.

In case you want to reduce your payments further, you can see what happens when you extend the number of months in your new loan. However, it would be in your best interest not to spread the loan over a large amount of time as that will lead to you paying more interest in total. Moreover, if for some reason, you take too long to pay off this loan, you can run the risk of being “upside-down” on your loan which means you can be owed more for the car than it actually is worth.

When not to refinance?

You can choose not to refinance if you are already close to the end of your loan. The potential savings you might have from a lower interest rate might not be worth going through the process again.

Moreover, if your credit has failed to improve, it is not likely that you will qualify for a lower interest rate. However, you can still change up the length of the loan but that is usually kept as a last resort option. If you feel like there is nothing else you can do, you might as well change the length of the loan. This is the best option for people wondering, “can you get out of a car loan early?”

You should also try to make sure that there are no prepayment penalty fees in your current loan contract. However, it might not be a problem for you as most car loans do not have such charges in which case you will be good to go.

Other options you can explore:

There can be other ways for you to deal with a bad car loan although these options may not help you or yield as much result as refinancing might. But if you cannot afford to refinance your car loan due to any reason, you might want to consider:

  • Selling your car to a private party. You can advertise the car for sale and let prospective buyers know that there is still a loan on it. Once the buyer has been found, you can call your lender and ask the details on arranging a transfer. The new buyer will then be responsible for the loan and will be the one paying it off and not you. Any remaining money could go as cash in your pocket or even as down payment for your next car.
  • Selling your car to CarMax. This is a quick and easy escape route which will appraise your car and give you a bargain free offer to buy it on the spot. If the offer is more than the loan amount you have on the car and you accept it, CarMax will pay off the loan themselves and if there is any difference, give you the cheque for it.
  • Skipping the payments. You can call your lender and tell them how hard of a time you are having because of a financial crisis. In a situation where it is tough making ends meet, it would not be possible to make the payments for your car loan. Sometimes, if you have an understanding lender, they might allow you to skip one or two payments so that you can avoid defaulting on the loan and ruining your credit score. You can then utilize this opportunity by effectively saving money from these missed payments and using it to pay your future car loan payments.
  • Downsizing at the dealership. You could also choose to trade in your car for a cheaper used car which will lead to a lower loan amount. However, you should keep in mind that dealers may look like they can work financial magic when in reality, they are super talented in rolling your balance so that you are stuck with a longer loan. So before you attempt to downsize at the dealership, you should be clear about the trade-in value of your current car and the value of the car you are looking to trade it for. Before signing the contract, it is important to review it carefully and if needed, run the numbers through a car loan calculator to make sure they add up. If you can swap out your car for another that is low-priced, you will be able to reduce your overall auto debt which is an added bonus that could help increase your potential savings.
  • Filing for bankruptcy. This option is often considered a nuclear option when it comes to loans and debts. A bankruptcy may provide you a temporary safety blanket by protecting you from your creditors which also includes your auto lender but it will likely take a toll on your credit score at the same time. It may also make it difficult for you to borrow any money in the future. If you do manage to borrow more money, it would be difficult to get a decent rate for it. Bankruptcy may also not be able to automatically get you out of your auto loan if you do not file for a Chapter 7 and surrender the vehicle. For more options, a bankruptcy attorney can help you discuss what can be done with your auto loan. More options will include making regular payments which reaffirm the debt, paying the loan off in a lump sum amount or getting a reduced payment.
  • Surrendering the vehicle. You also have the option of surrendering your vehicle. However, if you are considering this option, you should know why surrendering your vehicle can be a generally bad idea for several reasons.

Your debt will not be erased automatically if you decide to surrender your car nor will it get you out of the promissory note that was signed by you when the loan was taken out.

Even if the lender chooses to sell the vehicle to someone else, you will still end up owning a big balance for it. And if that happens, you will either just have to settle the debt or risk being sued by the lender.


So yes, you can choose to get out of a bad car loan. However, just remember, prevention is better than cure which is why you should always try to make sure that the contract you are signing is something that you are okay with.

Now, it is common to think about how to get rid of a car loan illegally. However, that is not necessary as you can get out of an upside-down car loan just as easily using the methods stated above.

Moreover, to answer the question, “how to get out of a car loan contract?”, the best way to get out of one would be to contact your attorney and discuss the loan agreements with him. Since every contract is different and has different terms, only a professional who knows the terms of your contract will be able to help you.

So now that you have all the options available and know how to get out of a bad car loan, you would be able to make a decision about what you can do considering your credit score and the length of your loan.

Charles Bains

Charles Bains

Charles Bains started his insurance career as a marketing intern before pounding the pavement as a commercial lines agent in Orlando, FL. As an industry journalist, his articles have appeared in a variety of trade publications. His insurance television career, short-lived but glorious, once saw him serve as the expert adviser on an insurance-themed infomercial (yes, you read that correctly). Having recently worked for various organizations, coupled with his broader insurance knowledge, Charles is able to understand our client’s needs and guide them accordingly. He is a gem for Insurance Noon as his wide area of expertise and experience have been beneficial in conducting further researches to come up with solutions and writing them in a manner which is easy for everyone including beginners to comprehend.