Last Updated on November 11, 2021 by Joe Regan
How to return financed car without penalty? Unfortunately, the bills will continue to pile up irrespective of how you try to contain them. In extreme cases, you have to give up your vehicle loan repayment.
On the other hand, you have to ensure the bills are paid to keep good credit, and on time. If you delay the payment, it is almost like you are making no attempts.
Coupled with COVID-19, you could be finding it challenging to cover the debts. If you have not really driven around with the financed car, you want to return it t the lender.
Unfortunately, returning a car you financed comes with a penalty. You want to avoid the penalty to prevent the fees that come with it.
When returning a car you financed, try to lower your cost of insurance as much as you can. You can always compare various insurance quotes to make sure you get the best deal. Some resources such as Insurify allow you to place over 10 free car insurance quotes to find a policy that suits your budget.
What is the Penalty for Returning a Financed Car?
Finances can get difficult, sometimes from pesky debts, layoffs, and more. This can happen without a warning which leaves you indecisively stuck, or forced to make tough decisions.
Fortunately, you can return your car to the lender, but this comes with a penalty. What is the penalty if you return a financed car? Your lender will outline the penalties for defaulting your automobile loan in the agreement.
The penalty for returning your car while the payment term is on depends on the agreement. In most cases, you get to pay a cancelation fee to get rid of your financed car before the payment term ends. Returning your financed car also affects your credit score negatively.
When you return a financed car, it tells lenders that it is difficult for you to repay. It also makes you a high risk. This means that lenders will find it difficult to approve your future loan applications. Your credit report already shows you are not capable, notwithstanding if you are capable at the time.
If you choose voluntary repossession, your credit can fall even more. You only resort to voluntary repossession when you have no way to make the payments. This works by turning in the vehicle and keys and accepting that you cannot complete the payment.
Voluntary repossession does not also sit well with lenders. However, it still keeps you in the book until the end of the loan.
It is not easy to get out of returning your financed vehicle without a penalty or risking repossession. The depreciating value of the car also means the lender is in a haste to get it for the next available buyer.
Suppose you owned the car for some years. The amount you owe might be higher than the current value of the car. This means after the lender sells the car, you are liable for the remaining balance. You also get to pay the cancellation fee for defaulting the loan.
Meanwhile, before you turn in your car to the lender, understand the agreement.
How to Return Financed Car Without Penalty
While returning a financed car attracts a penalty, below are the ways to return a financed car without a penalty:
Discuss the problem with your lender
Some insurance companies understand the difficulties and will extend your loan so you get to pay lower. Although the rate gets lower, some people are still unable to make their monthly payments.
Get in touch with your lender. First, you want to review the loan agreement.
Get in touch with the lender and speak about your options. Your lender might be able to give you a loan extension if you have been making timely loan payments in the past.
Suppose you are given a month off. It means that you will make the payment eventually after the month off.
Your finance may have all the features that make it luxurious and modern. unfortunately, your inability to pay off will make you regret making payments for it in the past. You might even find yourself admiring the less luxurious cars.
The best time to trade in your car is if its value is equal to or nearly equal to the loan debt. If not, you may have an additional thousand dollars to pay off.
You can take a personal loan to cover the balance. It typically comes with low interest but you should avoid using a credit card to cover the cost. You can use a credit card if it has a low-interest rate.
Switch the loan to another person
If you can no longer make your monthly loan payment, you can get another person to take off the loan from you. The person will function as your representative to buy off the loan and continue paying it from where you stopped. Ensure to revisit the lease agreement before you continue with this step.
In some cases, transferring your loan repayment to another party may not be accepted.
If you find someone willing to take off the loan and bear it, it can be a decent deal depending on the amount of money left.
If you find someone that needs a car for a year or thereabout, they make a good choice. You can always look up the various swapping website for people who need this kind of deal.
You can check Swapalease or any other commonly used website that supports swapping a lease. The fee you pay is less than the penalty, so it is a win-win situation.
Sell your vehicle
You can sell your car since you cannot afford to keep it. You have to find a buyer and explain the situation. The buyer will also have to conclude that the value of the car matches the debt.
Get on a platform like Craigslist to sell your car. You can try eBay or any popular platform in your location.
You can use resources such as Edmunds to appraise your car for sale to another person.
Refinance your auto loan
If you think it is worth it to keep the car, you can refinance it. This should be the case f there are a few months to go and the new loan has a lower interest rate.
The advantage of refinancing your vehicle loan is that it gives you more time to complete your loan payment. You can secure a lower interest rate depending on the agency you lend from.
Unfortunately, refinancing a car is not always that advisable aspect in personal finance. You will find yourself in the book for the auto loan for a longer period.
If you must refinance your loaned car, make sure you have good reasons. Look out for cheaper interest rates and take them to pay off your lender.
Get an affordable policy
You can get a more affordable policy simply by switching to another company. Sometimes, you can save up to 70%.
Your best bet is to compare the insurance quote with insurance comparison websites. Look for the service that allows you to compare even 20 insurance quotes.
You can get any discounts that you are eligible for, which further reduces your monthly payments.
Adjust your auto insurance coverage
Your insurance payment could also be stopping you from meeting your monthly payments. Find a cheaper insurance option after comparing various quotes.
To lower your car insurance cost, you can adjust your coverage. Let assume that you have an older vehicle. In this case, you can get rid of comprehensive and collision coverage.
These coverage options are most relevant to new cars. Your low-value vehicle may not need it.
Also, you can consider a usage-based insurance policy. A program such as Allstate’s Drivewise will calculate your monthly premiums according to your car mileage and driving habit.
Therefore, if you drive a handful of times each month, you can sign up for this type of program.
You need cheaper insurance to help you get out of your current loan.
As you can see, returning a financed car without a penalty can be hectic. Your best bet remains to find a lender with the least interest.