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If you need access to a set of wheels for a short period of time, say for a temporary job assignment, school, or a family situation, a short-term car lease may be a good option. Leasing a car for one or two years can be less costly than a long-term car rental and offers more convenience than Ubering everywhere.

However, short-term car leases tend to cost more than traditional car leases and don’t allow you to build any equity in a car.

Keep reading to learn more on how short-term car leases work, pros and cons of short-term car leases, and alternatives to consider.

Should I Lease a Car Short-Term?

If you only need access to a car for a year or two, a short-term car lease is worth considering. It can also be a good way to test out a new car before you commit to buying it. Just keep in mind that the shorter the lease, generally the higher the monthly cost will be. If you only need a car for six months or less, your best bet may be a long-term car rental.

Recommended: Long Term Auto Loans

How Long Are Short-Term Car Leases?

What constitutes a short-term lease will vary, but in general, it’s anything under 24 months. Some car dealerships, however, may consider anything under 36 months to be a short-term lease. A traditional lease is usually 36 or 48 months.

How Do Short-Term Car Leases Work?

When you lease a vehicle, you sign an agreement in which you get the use of the car for a certain period of time in exchange for monthly payments. At the end of the period, you can return the car to the dealer, or in some cases, you’ll be offered the opportunity to buy it.

One of the chief benefits of a lease is that you don’t have to worry about selling the car when you’re done with it. Also, in many cases, the contract includes some repairs and maintenance, such as oil changes.

The shorter the lease, however, generally the more expensive it will be. Leases that are less than one year may be particularly pricey because the value of a vehicle depreciates most dramatically in the first year. Plus, any one-time fees will need to be paid within that year, rather than spread out over a longer lease period.

Short-term car leases are available through franchised car dealerships, but can be much harder to find than traditional car leases, so it’s a good idea to call ahead to make sure that they offer the term you want.

Recommended: 8 Tips for Negotiating a Car Lease

Pros and Cons of Short-Term Car Leasing

Here’s a quick look at the pros and cons of short-term leases:

Pros of Short-Term Car Leasing

There are a number of benefits to getting a short-term car lease. These include:

Potentially Less Expensive Than a Long-Term Rental

If you need a car for a year or more, leasing is typically a cheaper option than renting a car. However, the cost advantage will vary depending on exactly how long you need the car and where you are located. For example, if you’re in a city like New York or Los Angeles, where rental cars are in high demand, renting could turn out to cost more than leasing. However, if you’re in an area with relatively cheap rental car rates, the gap between leasing and renting may close.

Less Costly Than Buying a New Vehicle Every Three Years

If you’re someone who always likes to be behind the wheel of a new car with the latest technology and safety features, a short-term lease can be a good fit. The monthly payments for an auto lease are usually lower than for a loan on a new car.

Recommended: Leasing vs. Buying a Car: What’s Right for You?

Cons of Short-Term Car Leasing

While there are certainly advantages to short-term leases, there are also some drawbacks you’ll need to consider. These include:

Prime Credit Is Typically Required

In order to get the best leasing terms, you generally need good or excellent credit, also known as a prime credit. From a lessor’s perspective, the higher your credit score, the more likely you are to be able to make your monthly payments. Lower credit scores don’t automatically disqualify you from a short-term car lease; they may simply result in higher monthly payments to offset the increased risk for the dealer.

Mileage Limits

When you lease a car, you usually have a yearly mileage limitation, since high mileage lowers a car’s resale value. These limits typically range between 12,000 and 15,000 miles per year. If you go over your limit, the dealership will often charge you a fee that allows them to recoup the lost value.

It may be possible to negotiate higher mileage on a leased vehicle, but you will likely have to pay more per month.

Set Terms

With a short-term lease, you will be limited to the time period stated in your contract. If you end up needing the car for less time, you will have to cancel your contract and could end up having to pay a high termination or cancellation fee. Should you realize you need the car for longer than the term of the lease, you may have to sign up for a pre-set car lease extension, such as six months or a year.

Recommended: Guide to Lease Disposition Fees

Short-Term Car Leasing Options

Lease deals under three years aren’t always easy to find. Fortunately, there’s more than one way to get a short-term car lease. Here are some avenues to consider.

Taking Over Someone’s Lease

You can take over someone else’s car lease through companies that facilitate lease transfers. If the car has been leased for a year, monthly payments may be lower, and some fees may already be paid. Make sure to check for restrictions like mileage limits or other conditions from the original lease.

Ending a Lease Early

Another option is to get a traditional lease and then get out of your car lease early. You could do this through the dealership, which will likely involve paying a contract termination or cancellation fee. Or, you could post your lease on one of the sites listed above to find another person to assume it and relieve you of the monthly payment.

Long-Term Car Rental

Many car rental companies offer long-term rentals. The max is often 11 months, but if you need a car for longer than that, you could get a couple rentals in succession. Extended car rentals typically offer lower daily rates than weekly or daily rentals, and don’t require a credit check. Car rentals also offer more flexibility than leases.

Recommended: Can You Extend a Lease on a Car?

Alternatives to Short-Term Car Leasing

The trade off to the flexibility provided by leasing is that you can end up paying more money, yet never build equity in the vehicle. Here are some alternatives to short-term leasing you may want to consider.

Getting a Car Loan

One alternative is to get a loan to purchase a used car — one that is known to hold its resale value — and then resell it when you no longer need it. When you finance a car, you’ll take out a loan for the price of the vehicle and repay it in monthly installments with interest. Downpayment, terms, and interest rates will be determined by your credit score. The higher your score, generally the better your terms and the lower your interest rate.

Recommended: Smarter Ways to Get a Car Loan

Refinancing a Car Loan

If you already have a car and a loan, you may want to consider keeping your current car, but refinancing it to make the payments more affordable. When you refinance a car, you pay off your old loan with a new one, ideally with better terms or a lower interest rate. The benefits of refinancing your car include making monthly payments more manageable and/or reducing the total cost of the loan.

Good times to consider auto loan refinancing are when interest rates drop and/or you’ve built your credit score. Even if you have to drive or ship your car to a temporary location, it could be a more cost-effective solution than getting a short-term lease.

Recommended: How Much Does It Cost to Refinance a Car?

Buying a Car in Cash

Buying a used car in cash is often the cheapest way to purchase a vehicle, since it eliminates the need to pay any interest. Paying in cash also gives you some negotiating power with the dealer — they know you are a serious buyer and both they and you know what your limit is, providing a ceiling at which you’ll simply walk away from a deal.

The Takeaway

If you need a car for less than three years, you may want to consider getting a short-term lease. This allows you to drive a new vehicle and can be less costly than a long-term car rental. However, short-term auto leases tend to be more expensive (and are harder to find) than traditional car leases.

Alternatives to a short-term car lease include buying a used car that will hold its value then reselling it when you no longer need it, and refinancing a car you already own in order to make your payments more manageable.

If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.

FAQ

How long is a short-term car lease?

It typically lasts anywhere from six to 24 months, though some dealers may consider leases up to 36 months to be short-term.

What are the benefits of a short-term car lease?

A short-term car lease may come out cheaper than a long-term car rental. It also gives you the opportunity to drive a new car with the latest technology and safety features.

Is short-term car leasing a good idea?

A short-term car lease can be a good option if you only need a car for a year or two. For longer stretches, you may want to consider buying a car or refinancing a car you already own.

Photo credit: iStock/FG Trade Latin

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOALR-Q325-117

It’s possible to trade in a car that you still owe money on. However, whether or not you should do so is a different matter. The process can be a bit complicated, and whether it makes sense will depend largely on how much your car is worth and how much you still owe on your loan.

Here’s a closer look at the steps needed to trade in your car and what to consider if you’re still financing it, so you can better decide if you should pay off your car before trading it in.

How Does Trading In Your Car Work?

When trading in a car, what you’re essentially doing is selling your used car to a dealership, which then applies that money to the price of the new or used car that you want to buy.

Generally speaking, the process is pretty simple. First, you’d take your old car into the dealership where you want to purchase a new vehicle and tell them that you’re interested in trading it in. They’ll appraise the car and make an offer. If you accept the offer, you’ll sign over your car’s title and use the proceeds to buy a new car.

The value of a trade-in is usually less than the amount of money you could make through a private sale. After all, the dealership needs to be able to sell the trade-in at a profit. That said, there are steps you can take to increase the value of your car before trading it in.

If you’re still making payments on your car, the dealership may be able to help. They could pay off your old loan and take over the title from your lender.

Do You Need to Pay Off Your Car Before Trading It In?

No, you do not need to pay off your loan before trading in a vehicle. However, you’ll want to think carefully about how much equity you’ve built in your vehicle before you do so.

When you have positive equity built in your vehicle, that means your car is worth more than you owe on your loan. For example, if your car is worth $8,000 and you still have $5,000 to pay off, you have $3,000 worth of equity. If you took that car to a dealer and they offered you $7,000 on a trade-in, they could pay off your $5,000 loan, and offer you $2,000 toward a new car.

On the other hand, if your car is worth less than the amount of money you owe on your loan, you have negative equity. This situation is also known as being upside down on your loan. For example, if you owe $10,000 on your loan and your car is only worth $9,000, you’re underwater to the tune of $1,000.

An underwater loan doesn’t mean that you can’t trade in your car. However, a trade-in at this point likely is not a good option. While a dealership might still be willing to take your vehicle, you’ll need to give the dealer the trade-in, plus the amount of negative equity. In many cases, the dealer will offer to tack on the amount you owe to a new loan, which could mean you’ll start off with a new loan that’s already underwater.

Recommended: How to Sell a Car You Still Have a Loan On

How Soon Can You Trade In Your Car?

Technically, there are no rules about when you can trade in your car, and you can do so at any time. However, you always want to consider how much money you stand to gain or lose at the time of trade-in before doing so.

Cars depreciate swiftly in the first few years you own them. (For reference, car depreciation is the loss in value due to normal wear and tear.) Typically, the value of your car will drop about 20% in the first year of ownership. Depending on the size of your down payment, this could mean that you’ll be underwater on your loan very quickly. You may want to hold off on trading in your car until your equity turns positive.

Recommended: Can Someone Take Over My Car Loan?

Is It Possible to Sell Your Car While Still Making Payments?

While it may be much easier to sell a car for which you already have a title, you can certainly sell one while still making payments. If you have a car loan, you’re on the hook to pay it off, so the same positive and negative equity considerations still apply.

If you have positive equity in your vehicle, you should be able to sell your car for enough money that you can pay off your loan and still pocket some profit. However, if you have negative equity when you sell your car, you’ll still owe money to your lender after the sale. You’ll need to pay off that amount before the title can be signed over to the buyer.

Recommended: 8 Ways to Get a Lower Car Payment

Pros and Cons of Trading Your Car In Before Paying It Off

If you still have a car loan and you want to trade in your vehicle, carefully weigh the advantages and disadvantages of doing so.

On the one hand, the trade-in process is relatively simple, especially if you have positive equity. It can be much easier than listing a vehicle for sale privately or running around to multiple dealers trying to sell it for the best price. The dealership will also take care of paying off your old loan for you.

That said, if you’re underwater on your loan, you may end up facing complications further down the road. This is especially true if you allow the dealer to roll your negative equity into a new loan. If you agree to this and your car is stolen or totaled, you may have to pay off the balance of your loan yourself without help from insurance. What’s more, you’ll be starting off with a bigger balance, which could increase the amount you pay in interest over the life of the loan.

Here’s an overview of the major pros and cons to consider if you’re weighing the question: ‘Should I trade in my car before I pay it off?’:

Alternatives to Trading In Your Car

If your monthly auto payments are becoming unmanageable, downsizing to a less expensive vehicle can be one way to make your payments cheaper. However, if you’re upside down on your loan, this might not be the best choice.

Another option is auto loan refinancing, which allows you to pay off your old loan with a new one, hopefully with a lower interest rate or longer term that makes your monthly payments more manageable.

If possible, you might also consider scraping together the funds to pay off your car loan. That way, you don’t have to worry about it when you go to trade in your vehicle.

Another option is to try to sell your car yourself. You may be able to get more for your car if you sell it to a private buyer rather than a dealership, which could help you cover the cost of your old loan. Keep in mind, however, that with this option you won’t have the dealership there to handle paying off your lender and transferring the title.

Recommended: Is Proof of Insurance Needed to Refinance?

The Takeaway

You can trade in your car while you’re still paying it off, but it’s trickier to do so than if you owned your car outright. It’s easiest if you have positive equity in your car that can be used to pay off your loan and provide a little extra toward the purchase of a new vehicle. If you have negative equity, you may want to continue paying off your loan until your equity turns positive.

If you’re looking to make your monthly payments more manageable, another option to consider is refinancing your auto loan. With an auto loan refinance, you could potentially lower your interest rate and/or your monthly payment. Keep in mind, though, that by extending your loan term and lowering your payment, you’ll pay more in interest over the life of the loan.

If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.

FAQ

Is it better to pay off a car loan before trading it in?

Paying off a car loan before trading in can simplify the process and potentially increase your trade-in value. However, it’s not always necessary. Dealers can handle the loan payoff, but if you owe more than the car’s value, you may face negative equity, impacting your next purchase or loan terms.

How long should you pay on a car before trading it in?

It’s generally recommended to wait at least two to three years before trading in a car. This timeframe allows for loan balances to decrease and vehicle depreciation to stabilize, reducing the risk of negative equity. However, timing depends on your financial situation, car value, and loan terms.

Will a dealership buy my car if I still owe money?

Yes, dealerships often buy cars with an outstanding loan balance. They will pay off your remaining loan and apply the car’s trade-in value toward your new purchase. However, if you owe more than the car’s value (negative equity), you may need to pay the difference or roll it into a new loan.

Photo credit: iStock/FG Trade Latin

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOALR-Q325-116

Getting out of a car loan can be a tough decision, but it’s often necessary if your financial situation changes or the loan becomes unaffordable. Whether you’re dealing with high monthly payments, unexpected expenses, or negative equity, there are options to address the issue.

From selling the vehicle to refinancing or negotiating with your lender, there are several ways to exit a car loan. Here’s a look at each and the factors to consider before deciding how to get out of your car loan.

How Do Car Loans Work?

Buying a new or used car is likely one of the biggest purchases you’ll make. The average cost of a new car in July 2025 is $48,699, according to CarEdge, so it’s no surprise that many car buyers need to finance their purchase with an auto loan.

When it comes to how auto loans work, you borrow money from a lender to cover the price of the vehicle you wish to purchase. As the borrower, you agree to repay that money over time in regular installments, including interest. You may also have to pay various fees associated with the loan.

Payments are made over a set period of time, known as the loan term. Terms can be anywhere from 12 to 84 months or even 144 months, though on average they are about 72 months for new cars and 65 months for used ones.

The shorter the term, the higher your monthly payments will likely be, but the less you’ll pay in interest. The longer the term, the lower your monthly payments will be. However, because interest payments are drawn out over a longer period, these loans may be more expensive in the long run.

In general, borrowers with strong credit scores (670 and up is considered “good”) and stable incomes will be offered good interest rates and terms.

Recommended: No Income Verification Car Loans

Can You Get Out of a Car Loan?

If, for some reason, you find that your auto loan is no longer working for you — perhaps you don’t need the car anymore or you can’t afford the payments — then it is possible to get out of your car loan.

5 Ways to Get Out of a Car Loan

Here’s a look at some of the options to see your way to getting out of car loan.

1. Selling Your Car

You can sell your car while you’re still making payments. Before you do, however, find out what the payoff amount is. This is the amount you still owe before you own your vehicle outright. Ideally, this is how much you’d garner from a sale.

First, you’ll need to find out what your car is actually worth, which you can do using online resources such as Kelley Blue Book. Subtract the amount you still owe from the car’s value. If the resulting figure is negative, you owe more on your loan than the car is worth. In other words, you have an “upside down loan” on your hands, and you have negative equity in the vehicle.

If you have negative equity, you’ll be required to make up the difference to ensure you repay your loan in full.

2. Trading in Your Car

If you’re having trouble affording your monthly payments, you may consider trading in your car to a dealer toward the purchase of a less expensive car. Weigh this option carefully, however, since dealer trade-ins usually offer less money than you’d get through a private sale.

3. Refinancing Your Loan

Another way to help you afford your monthly payments is by refinancing your loan. When you refinance, you pay off your old auto loan with a new one, ideally with a lower interest rate or lower monthly payments. One way to make your monthly payments more affordable is by extending the loan term. But beware, this can make the loan more expensive in the long run.

You may want to consider refinancing if interest rates have dropped or you’ve built your credit score, which helps you qualify for a loan with a lower rate.

Note: This option may not be worth it if the fees you’ll owe on your new loan outweigh the savings from refinancing.

Recommended: How to Calculate the APR on a Car Loan

4. Renegotiating With Your Lender

If you’re struggling with your auto loan payments, consider reaching out to your lender to renegotiate your car loan. Talk to them about your situation, and see what solutions they may have to offer. For example, if you are in some sort of financial distress and afraid of missing payments, your lender may be able to offer you forbearance on your loan, which puts payments on pause for a period.

Your lender might offer to extend your term without refinancing, or they might be able to modify your monthly payment to make it more manageable.

Recommended: Guide to Purchase Orders for Cars

5. Voluntarily Surrendering Your Car

This option is available to you if you’ve already defaulted on your loan and your lender is going to repossess your car. Voluntary repossession gives you more flexibility in how you return your car to your lender.

Recommended: Can You Extend a Lease on a Car?

Does Getting Out of a Car Loan Affect Your Credit?

Getting out of a car loan can hurt your credit. If you pay off your loan through the sale of your car, you may reduce your credit mix, one of the key components of your FICO® credit score. Seeking new credit through an auto loan refinance can also cause a dip in your credit score. Lenders worry that borrowers with new credit may be more likely to default on their loans.

However, your payment history is the biggest component of your credit score, so the thing that will hurt your credit most is missing payments, going into default, or having your car repossessed. Do what you can to avoid these possibilities, including refinancing, renegotiating, or selling your vehicle.

Recommended: How to Increase Value of Car

The Takeaway

If you no longer wish to have a loan for your automobile, there are certainly options to getting out of a car loan. Paying off the loan, whether with cash on hand or by selling your car and using the proceeds to do so, is the best way to clear your debt. Otherwise, if it is a question of finding a more affordable monthly payment, renegotiating, or refinancing.

If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.

`h2 id=”faq”>FAQ

Will returning a car hurt my credit?

Returning a car can hurt your credit if it’s considered a voluntary repossession or if you fail to meet lease or loan obligations. Missed payments or repossessions negatively impact your credit score. However, if you fulfill all financial terms before returning the car, your credit score may remain unaffected.

Can I sell my car if I still owe money on it?

You can sell your car even if you still owe money on your loan. Your lender will keep the proceeds from the sale to help pay back the loan. If there’s a shortfall after the sale and you still own money, you’ll need to make up the difference.

Can I sell my car back to the dealership?

Selling your car to a dealership is certainly a possibility, but beware that dealerships often offer less money than a private sale.

Photo credit: iStock/Vladislav Stepanov

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOALR-Q325-114

By getting a car loan with a 0% annual percentage rate (APR), you’ll avoid paying interest or fees on your loan. This can feel like scoring a great deal from your lender, but know that they don’t give away something for nothing.

To get one of these offers, you’ll usually need excellent credit, proof of stable income, and often a down payment. Additionally, there are potential downsides of 0% financing vehicles to be aware of.

Here’s a closer look at what to look out for, as well as how to get a 0% APR car loan.

What Is a 0% APR on a Car Loan?

A 0% APR car loan has no fees and no interest rate. That means that all of the money you repay each month goes to paying down your principal, or the amount you borrowed.

Usually, when you take out an auto loan, your lender will charge you interest on the loan as well as fees to cover the cost of processing the loan. Car loan interest rates are typically based on the amount of the loan, the loan term (the period over which you repay it), as well as factors like your credit score. A loan’s APR represents your monthly payment, including both interest and fees.

In general, 0% vehicle financing is offered through a car manufacturer or dealer through the organization’s captive finance company. Banks and other lenders typically do not offer 0% APR loans, as lenders make their money through interest and fees.

Dealerships, on the other hand, can make money through the sale of a vehicle, so they don’t necessarily need to charge interest. What’s more, if they offer a customer a 0% APR, that customer may be more likely to buy a new car, and they may be willing to spring for a pricier vehicle.

These 0% APR loan deals are usually only available for new cars, or in some rare cases, for certified pre-owned vehicles. A 0% APR loan is a type of secured auto loan. This means that if you miss a payment, the dealer can repossess your vehicle.

Requirements for 0% Financing on Vehicles

When a dealer offers you 0% APR, they’re taking a big risk. As such, you’ll likely need a relatively high FICO® credit score to qualify. In fact, you may need a credit score of 740 or higher.

The dealer also may require that you make a hefty down payment to qualify for such an auto loan interest rate. And even if you make the down payment, you’ll also likely need to prove that you have stable income that will allow you to keep up with future payments.

Recommended: Is Proof of Insurance Needed to Refinance?

Ways to Qualify for 0% APR on Car Loans

If you’re hoping to secure a 0% APR, there are some steps you can take that may make it more likely a dealer will offer it. Namely, you’ll want to do everything you can to keep your credit score high.

Making Payments On Time

There are several factors that make up your FICO score, each of which is weighted differently. Your payment history is the most important factor, comprising 35% of your score.

This may come as no surprise, since lenders will want to know that you have a track record of paying off your loans before they offer you a new one. Make sure you always make payments on time and in full on open lines of credit.

Reducing the Balance on Your Lines of Credit

The amount you owe represents 30% of your credit score. If it looks like you’re using most of your available credit, lenders may worry that you could be overextended and thus at greater risk of defaulting on a new loan. Paying your existing balances can help your score.

Another way lenders may evaluate whether you’re overextended is by examining your debt-to-income ratio (DTI), which is the amount of money you owe compared to how much you earn. Lenders see borrowers with lower DTI as less risky and more creditworthy. You can also lower your DTI by paying off outstanding debts.

Building a Long Credit History

Length of credit history represents 15% of your score. Showing lenders that you have long relationships with other lenders is another way to boost your creditworthiness in their eyes.

Because your credit score takes into account how long your lines of credit have been established, it can make sense to keep lines of credit open. For example, if you have a couple of credit cards and mainly use the newer of those cards, it can still make sense to keep both accounts open. There are, of course, circumstances where this might not make sense, such as if one of the cards charges a steep annual fee.

Limiting Lines of Credit

The rest of your credit score is based on credit mix and new credit, both of which represent 10% of your score. Lenders will look to see if you’re able to juggle a variety of loan products, including credit cards, student loans, and mortgages.

Additionally, lenders will look at what credit accounts you’ve opened recently. People who open multiple lines of credit in a short period of time may be at greater risk of default. Particularly if you’re trying to build your credit score, you may consider limiting the number of new lines of credit you pursue.

Recommended: How to Calculate the APR on a Car Loan

How Does 0% APR Work When Refinancing a Car Loan?

One of the potential drawbacks of 0% APR is that repayment terms tend to be short, often 48 months or less. Monthly payments may be relatively high. If your payments become unmanageable, you may be able to refinance your car loan.

Automakers may use other tactics to entice you to purchase a new vehicle from them, including cash bonuses. You typically can’t take 0% APR and a cash bonus, and if you choose the cash, you may end up with a higher interest rate. If that’s the case, you might consider refinancing to a lower interest rate in the future.

In both situations, however, the downside is that applying for two loans within a relatively short period of time can affect your credit score. This is because each application requires a hard inquiry, which usually causes a temporary dip in a credit score of several points.

Recommended: Can You Remove a Cosigner From a Loan?

The Takeaway

A 0% APR car loan can be a good way for some auto buyers to finance a new vehicle since you don’t get charged interest. However, these offers are typically only available from auto manufacturers or dealers to those with high credit scores, large down payments, and other credentials. One option to this kind of loan is refinancing, or paying off your old loan with a new one that ideally comes with a better interest rate and possibly better terms.

If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.

FAQ

How can you get 0% APR on your car loan when refinancing?

A 0% APR offer is typically extended when you purchase a new car from a dealer or auto manufacturer. If you’re attempting to refinance an existing auto loan, you likely won’t be able to secure a 0% APR.

What credit score is required to get 0% APR on your car loan?

A credit score of 740 or above is typically required to qualify for 0% APR.

Is a cosigner required to get 0% APR on your car loan?

A cosigner is not required to get a 0% APR when you purchase a new or certified pre-owned vehicle. However, if you don’t qualify for this kind of loan on your own, a cosigner with strong credit could help you secure this kind of deal.

Photo credit: iStock/skynesher

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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A car title is a key piece of documentation that shows who owns the vehicle as well as identifying information about the vehicle. The title will typically list the lender or lienholder if you’re repaying a car loan. In most states, the title is held by the lienholder until you finish paying off the car loan.

That said, what is a vehicle title, exactly? How do you get one and how much does it cost? What else is important to know about a car title? Learn the answers to these questions and more.

The Purpose of a Car Title

A car title has one purpose: to show who legally owns the vehicle. As such, this document is used to record when ownership is being transferred from one person to the next. A car title typically lists the registered owner of the vehicle and any lienholders with a security interest in the vehicle.

In general, lienholders will not appear on the title if the registered owner has 100% equity. You gain 100% equity in the car when you pay off a car loan or when you buy a new or used car outright.

Recommended: Is an Auto Loan Secured or Unsecured?

Car Title Defined

A car title is an ownership document that contains important information about the vehicle and its owner(s). Either the state Department of Motor Vehicles (DMV) or department of transportation issues it when the car is sold.

What Is Included on a Vehicle Title?

A car title will contain the name of the owner along with other key pieces of information that can vary by state. Here’s some of the information that’s typically found on a car title:

Vehicle Identification Number (VIN)

A car title will usually include a vehicle identification number or VIN, which is typically a 17-digit unique code. Its characters and digits encode key information about the vehicle, such as the country of origin and engine type.

Vehicle Description and Odometer Reading

The automobile title will list identifying information about the vehicle, such as its year, make and model. It may also include the odometer reading, which lists the number of miles it has been driven at the time of titling.

Lienholder Information

Lienholder information will typically appear on the title if you owe money on a secured auto loan. A lienholder is usually a financial institution, and your lienholder may repossess the vehicle if you default on a car loan.

When you pay off your car loan, there would be a change in the type of title you would physically possess, from a lien title to a clear title. (Some states issue electronic or paper titles.)

Recommended: Questions to Ask When Buying a Used Car

Types of Automobile Titles

A car title in some cases can tell you whether the vehicle has a history of being rebuilt or whether a lienholder has a security interest in the vehicle:

•  Clear title: This is a title that has no loan (lien) on it. If you have a clear car title, this means you’re the sole owner, with no other party having any legal claim on the car.

•  Lien title: If you’ve financed a vehicle, then the lender/lienholder has an interest in that vehicle until the loan is paid off. A title with the lienholder’s name on it is a lien title.

•  Clean title: This means that a car has never been in an accident in which it was declared a total loss. This is something you’d want to know if buying a used car.

•  Rebuilt title. This indicates a car that was wrecked to the point of being declared a total loss but was repaired and is now drivable again.

•  Salvage title. These are vehicles that, after a wreck, are considered a total loss. This does not mean that it has no value; rather, the costs to repair it exceed that value.

Recommended: How Does Car Refinancing Work?

How to Get a Car Title

Car titling laws can vary by state. In most states, you’ll generally receive a title when you gain 100% equity in the vehicle. This can happen when you buy a new or used car outright or when you pay off your lienholders in full.

Some states, however, may give car titles to the registered owner even if lienholders have a security interest in the vehicle. Here are the states that may give lien titles to the registered owner:

•  Arizona

•  Kentucky

•  Maryland

•  Michigan

•  Minnesota

•  New York

•  Oklahoma

•  South Dakota

•  Wisconsin

Titles are issued by a state’s Department of Motor Vehicles (DMV) or their department of transportation. If you were to misplace your car’s title, however, rest assured there are ways you can get a replacement car title.

How Much Is a Car Title?

There is typically a title fee when you first purchase a vehicle, with the amount varying by state. Some states charge a fee of $10 or less, while other states may charge a fee of more than $200.

Note that a title fee is different from a registration fee. A title fee is typically a one-time fee, whereas car registration fees typically must be paid annually or biennially as long as you own the vehicle. You can register a car without a driver’s license in all states.

When Is a Car Title Required?

States typically require you to apply for an original title or title transfer within days or weeks of buying a new or used car. Car titles are exchanged when you buy, trade in, or sell a car. If you refinance your vehicle with a lender other than your current one, then the lienholder will change on that title.

Here’s more about each type of transaction when a car title is required.

Title Jumping: Trading, Buying, or Selling a Car

If you decide to trade in your car, you would go to the dealership that has the vehicle you want to buy or lease. Let them know that you’d like to use your current vehicle as a trade-in, and they’ll appraise it and offer you a certain amount of money. Usually, this money goes toward the purchase or lease of your next vehicle. If this process is a go, then you’ll sign the car title over to the dealer, making them its new legal owner.

When selling your vehicle to a private individual (and there is no outstanding loan), you’d sign the title in the correct spot to indicate that you plan to transfer ownership to the buyer. It’s important to sign in the right spot to avoid delays in the transaction.

If you want to sell a car but you have a lien title (indicating that a loan still exists on the vehicle), contact your lender to find out how to handle the process. The loan must be paid off before the title can actually transfer to the new owner.

Recommended: The Most Expensive Car Repairs

Title Transfer

Once a seller has signed off on a clear title to release their ownership (and any additional information required by the state is filled in), then the buyer can take the automobile title to the appropriate state office to have a new title created in their name. If there are two current owners, both will need to sign the title. In some states, this transaction may need to be notarized, so check what your state requires.

If there is a loan on the vehicle, work with your lender to transfer ownership.

Recommended: What Questions to Ask When Refinancing

Title Loan

With a car title loan, you give a lender the vehicle title in exchange for a short-term loan (typically a term of 30 days), usually for a small amount of money. You’d need to pay a fee for this service and, if you can’t pay back the money, the lender can repossess your vehicle. This type of loan can be quite expensive.

Refinancing Your Vehicle

Refinancing your car loan with a new lender will change the lienholder information on your title. If you’re thinking about when to refinance a car, one important thing to do is to find out what loan-to-value ratio (LTV) a lender requires, which compares the amount you’re borrowing to the value of your car.

Some auto refinance lenders may offer an LTV ratio of up to 125%. Refinancing may be right for you if you can secure a lower interest rate, but you may pay more interest over the life of the loan if you refinance with an extended term.

Once you do the math and determine you’re good to go, make sure you’ve read up on the process of how to refinance a vehicle — more specifically, the information to gather before you do so. Proof of car insurance and proof of income is typically required to refinance a car loan. Typically, a new title is issued to reflect the new lienholder.

The Takeaway

A car title demonstrates who legally owns that vehicle and contains important information about the vehicle and its registered owner. There are several types of car titles, including a clear one (where there is no loan) and a lien title (where there is a loan/lien on the vehicle). When you refinance a car loan, a new title is typically issued to reflect the lender’s information.

If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.

FAQ

What does the title mean for a car?

A car title is a document that confirms you legally own a particular vehicle. It’s typically issued by your state’s department of motor vehicles and includes such information as the vehicle identification number (VIN) and the vehicle’s make, model, year, color, and mileage.

Who holds the title to my car?

If you own your car outright, you hold the title. If you have a loan, your lender likely holds the title until your debt is fully paid off.

How do you get a car title if you lost it?

Most states offer replacements through a local DMV office. You will likely have to provide proof of ownership and pay a fee to obtain the replacement title.

Photo credit: iStock/robertsrob

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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