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You may extend your car lease contract if you’re not quite ready to give up the car. In early 2025, the average monthly payment for leasing a car was $638, depending on the make and model of the car.

A typical leasing contract can have a 36-month term, according to Kelley Blue Book, but you may request an extension at any point. Sometimes dealers will let you extend your lease on a month-by-month basis. Other times lessees will have to sign up for a preset period of time, such as six months or a year.

Car Leasing Basics

Here are some car leasing basics:

•  Leasing is a form of financing that gives you the privilege to drive a vehicle under certain terms and conditions.

•  Once you settle on leasing, the first step is to decide on what type of vehicle you’d like to lease, and then you’ll negotiate the terms of the lease.

•  When signing the car lease contract, beware there are likely acquisition fees that cover the administrative costs of this process.

•  A short-term car lease can be anywhere from 12 to 24 months, while a long-term lease can be up to 60 months.

That’s a basic overview on how leasing a car works. If you’re interested in extending your lease, you may request an extension to your leasing term. A leasing company has no obligation to approve you for a leasing extension, but requesting one may open the door to renegotiating an extended term.

What if you extend your lease and then realize the arrangement is not right for you? Don’t panic, and know that there are ways to get out of the car lease, including early termination, a lease buyout, and a lease transfer.

Recommended: Can You Remove a CoSigner From a Car Loan?

Types of Car Lease Extensions

You have the option of extending your lease either formally or informally.

Informal Car Lease Extension

An informal extension is often a temporary measure that helps smooth out the transition between one lease and another.

To take this informal route, you must contact your leasing company and let them know that you want to continue using the vehicle after the lease is up. The company must grant permission for an informal extension. Monthly payments must be paid as they are laid out in the original contract. The extension can then last until the leasing company asks for the vehicle back, usually after six months at most.

Formal Car Lease Extension

A formal lease extension, on the other hand, requires signing a legally binding modification to the lease agreement. The agreement kicks in immediately after the initial agreement ends. A formal agreement may include revised monthly rental fees and a new mileage agreement based on the car’s depreciation over the period of the extended lease.

How to Extend a Car Lease

Here’s a look at the steps it may take to extend a car lease agreement:

•  The lessee contacts the lender through which the original lease agreement was made and says they want to request an extension.

•  The lender reviews the request and determines whether the lessee is eligible.

•  If the request is approved, the lessee will be sent a new contract. This contract will have terms and conditions such as a new end date, mileage allowances, and rental fees.

•  The lessee signs the modified lease document and returns it to the lender.

Exemptions to Car Lease Extensions

There is a chance that a lease extension will be denied. Here are some of the circumstances for which that may be the case:

•  The lessee is behind on lease payments and at risk of defaulting.

•  The leasing company decides it needs to recall the vehicle for other commercial reasons.

•  There is a previous agreement that hasn’t yet expired.

•  The individual did not fill out the lease extension application correctly.

Lease Buyout

If you want to continue driving the vehicle when the lease is up, you may also have the option of a lease buyout. Check your lease agreement to see if this is a possibility.

There are some obvious advantages to a lease buyout. First, you know the car’s entire history, whether you’ve maintained it perfectly or if there have been any troubles. In comparison, individuals buying another used vehicle have much less insight into the car’s past.

If your maintenance of the vehicle leaves something to be desired, or if you put too many miles on the vehicle, your lease could put you on the hook for extra fees to cover the wear and tear. However, a lease buyout could avoid those expenses.

A lease buyout could also end up costing less over time than continuing a cycle of leasing new vehicles.

Those who know they want to buy out their lease from the get-go should let the leasing company know before signing a contract. This can help in negotiating lease disposition fees, which are fees lessees agree to pay to the leasing company upon returning a vehicle.

Downsides of a Lease Buyout

There are also some potential downsides to a lease buyout. For one, staying in the lease cycle ensures that you are always driving a relatively new car. If this factor is important — to your sense of safety, for example — a buyout may not be a good idea.

It’s also possible that a lease buyout can end up costing you more than other options. For example, buying out a lease without making a new down payment may lead to monthly payments that are higher than lease payments.

Also, buying out a leased car may be more expensive than buying a similar used car on the open market that’s just a little bit older.

Recommended: Can You Refinance a Car With the Same Lender?

Financing a Lease Buyout

If you decide you want to buy out your lease, you can pay for the car in cash, if you have enough on hand, or you can seek financing.

Some financial institutions offer lease buyout loans. It’s best to shop around for financing terms that are right for you. Shorter loan terms tend to come with higher monthly payments, though individuals may end up paying less interest over the life of the loan. A long-term car loan, meanwhile, may feature lower monthly payments and higher total interest costs.

The annual percentage rate (APR), which represents the yearly cost of carrying a loan, tends to be higher for lease buyout loans than new car loans.

Recommended: Auto Loan Requirements and Approval

Refinance a Car Loan

In the future, if auto loan payments become untenable, an individual’s financial situation improves, or interest rates drop, it may be worthwhile considering an auto loan refinance.

When refinancing a loan, borrowers take out a new loan to pay off the old one. Ideally, this new loan will free up some cash by offering a lower interest rate or better terms that make monthly payments easier to manage. Individuals may use their increased cash flow to pay off the loan faster or to focus on other financial goals.

Refinancing an auto loan may be easier than having someone take over your car loan, particularly if you have good credit.

Recommended: How to Refinance a Car Loan

The Takeaway

If you have a car lease, you may be able to extend it, either month by month or for a specific period, to continue using your vehicle without buying it or returning it. There are, however, times that a car lease may not be extended or when other options could be a preferable alternative.

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 do I initiate a car lease takeover?

Leasing companies may allow you to take over someone’s lease, or transfer yours to another party. Each company has different requirements to initiate the process, so contact the lessor to find out what steps to follow.

Can you extend a lease on a car?

Yes, you can typically extend the lease on a car, unless you don’t meet the lessor’s requirements or they need to recall the vehicle.

What are my options at the end of a car lease?

At the end of your lease, you can return the car to the leasing company, extend your lease, or initiate a lease buyout.

Photo credit: iStock/Anastasiia Havrysh

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-Q325-065

Your car’s suspension helps maximize your vehicle’s performance and ensures you have a smooth ride as you’re driving down the road. The suspension system consists of shock-absorbing components that increase friction with the road to ensure your tires are making a good connection with the pavement. This helps smooth your ride by absorbing energy from bumps in the road.

As you might imagine, your suspension is subject to a fair amount of wear and tear, and there are many components that may eventually need repair or replacing.

Here’s a closer look at how much you can expect to pay to replace your suspension system, signs your suspension system may be failing, factors that impact repair costs, and more.

How Much Does a Suspension Repair Cost for a Car?

Repairs to your suspension system can cost anywhere from $1,000 to $5,000, depending on what went wrong and what needs to be replaced. Wheel alignment, for example, may be relatively inexpensive, costing $20 to $400, while shock absorber replacement could cost as much as $1,500.

How Do I Know I Need a Car Suspension Repair?

When your car’s suspension system is not working properly, there are a number of symptoms you should look out for, including:

You Feel Every Bump in the Road

Your car’s suspension helps keep you from feeling bumps and potholes in the road. As it breaks down, you may start to notice these in the main cabin of the car. Not only may the impact of bumps increase, but you may feel them for longer.

Your Car Is Harder to Steer

A car that bumps around more than usual may be more difficult to control. What’s more, depending on where repair is needed, your car may pull to one side, which will force you to constantly compensate as you’re steering.

You Notice Irregular Tire Wear

When your car is functioning properly, the treads of your tires should wear evenly. Uneven wear can signal problems with your suspension. You may consider having your tires rotated as soon as possible to stave off the need to replace them.

Your Car Squeaks While Driving Over Bumps

A failing suspension can also be quite noisy. Your car may make all sorts of sounds, including squeaking, clunking, or grinding, depending on which part of the system is failing.

Your Car Sits Low on One Side

If your car tilts to one side while parked on a level surface, suspension components on that side of your car may be failing.

Your Wheel Alignment Is Poor

Misaligned wheels can put stress on other components of your suspension system. Wheels that have fallen out of alignment can make steering feel sloppy or like your car isn’t responding correctly when you move the wheel. Having your wheels aligned can fix these issues and help prevent future problems.

Your Struts Are Worn Down

Your car will either have shock absorbers or struts. Worn down struts can make a knocking noise when you drive over bumps.

Your Shock Absorbers Are Worn Out

Failing shock absorbers have a hard time keeping your tire on the pavement. As a result, your car may bounce, shake, and vibrate more when it goes over bumps.

Recommended: Guide to Transmission Replacements

What Factors Impact Suspension Repair Costs?

If you’ve noticed one or more of the above signs, your suspension may be failing and need to be repaired or replaced. You should bring it to a reputable auto mechanic as soon as possible. The cost to repair or replace suspension components will depend on a number of factors, including:

The Make and Model of Your Vehicle

The make and model of your vehicle tells you the brand of your car, the type of car, and the year that it was made. Cars that are common and popular may be cheaper to repair. SUVs, luxury vehicles, or rare automobiles that require specialty parts can be more expensive to repair.

Recommended: How Much Is My Car Really Worth?

The Severity of the Damage

A failing component can cause a cascade of damage. Cost will depend on whether or not you simply need to repair one part or if you’ll need to replace a multitude of parts. Be aware that suspension components often come in pairs, which means you’ll need to replace both parts on your vehicle, which can increase labor costs.

The Parts Required for Repairs

There’s a wide range in cost for the actual components. Shock absorber replacement can run you $200 to $1,500, coil spring replacement may cost $550 to $700, strut replacement can run up to $900, and wheel alignment can cost $20 to $400. You may or may not need multiple repairs and replacements in one single visit.

The Brand of the Suspension Component

Different brands of components will provide different design, quality, efficacy, and durability. You may choose lower cost brands, but you may lose some of the qualities listed above. Pricier brands may last longer and need to be replaced less frequently, which can save you money in the long run.

The Mechanic You Choose

The price to repair a suspension system will vary depending on location and the mechanic you choose. You may want to get a quote from several mechanics to help ensure that you’re receiving a fair price.

Recommended: Smarter Ways to Get a Car Loan

4 Ways to Cover Suspension Repair and Replacement Costs

When it comes time to pay your bill at the auto mechanic, you have several options to cover your cost.

Cash

Cash is by far the cheapest way to cover the cost of auto repairs since paying in cash doesn’t involve interest payments. However, if you don’t have enough cash on hand to pay for the repairs and cover other necessary immediate expenses, you may consider financing options.

Recommended: How Much Does a Car AC Compressor Cost?

Credit Card

Credit cards may be a good short-term financing option if you believe you can pay your balance in full at the end of the billing cycle. Credit card companies tend to charge relatively high interest rates, which are currently hovering around 21%, according to the St. Louis Federal Reserve (FRED).

If you pay your credit card in full each month, you may avoid interest payments. However, if you carry a balance, your debt can become increasingly expensive.

Personal Loan

A personal loan for car repairs allows you to borrow a lump sum of money which can be used for a wide variety of purposes — including auto repairs — and paid back in regular monthly installments. Interest rates on personal loans tend to be much lower than credit card interest rates, currently averaging 11.57%, according to FRED.

As with credit cards, your credit score will help lenders determine what interest rates to offer, with preferred rates going to borrowers with the best scores.

Recommended: Car Axle Repair and Replacement Costs

Auto Loan Refinancing

Refinancing your auto loan can be a way to save money that can then be used to pay for auto repairs. When you refinance a loan, you take out a new loan to pay off your old loan. This new loan will hopefully have a lower interest rate and may have a lower monthly payment. You can also lower your monthly payment by lengthening your loan term. Beware that in doing so, though, you will be paying interest for longer. This can ultimately increase the cost of your loan.

You can also consider a cash-out auto loan refinance, which gives you cash back when you take out your new loan. This money can then be used to pay for your suspension replacement.

A car loan refinance calculator can help you determine your potential savings.

The Takeaway

A functioning suspension system is critical to your ability to drive your car safely and comfortably. Watch out for the signs that your suspension is failing and if you notice it is, talk to an auto mechanic as soon as you can. Getting ahead of small problems now can potentially help you head off bigger problems down the road that can end up costing you more.

Replacing a suspension system can come with a price tag in the thousands of dollars. Carefully consider your financing options, and choose the option that works the best for your situation.

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 worth it to replace my suspension?

Yes. To drive your car safely and comfortably, you may have no choice but to replace certain components of your suspension system.

Can you drive a car with a damaged suspension?

It is unadvisable to drive a vehicle that has a damaged suspension system. If you suspect your car is in need of repair, take it to a reputable auto mechanic immediately.

What are some common signs that your car’s suspension needs repair or replacement?

Common signs of suspension issues include unusual noises (such as clunking or squeaking), uneven tire wear, poor handling, and a bumpy or unstable ride. Recognizing these symptoms early can help prevent more extensive and costly damage.

Photo credit: iStock/Scharfsinn86

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-Q325-064

If you’re having trouble paying your auto loan every month, you’re not alone. In fact, 5% of people were more than 90 days late on their car payments in the first quarter of 2025.

With an auto loan, the vehicle often serves as the collateral to secure financing from a lender. If you stop making payments, a lender may have the right to repossess and sell the vehicle to help recoup what is owed on the loan.

When you’re behind on payments, voluntary repossession could be an option to get out from under an auto loan. To help inform your decision, this guide will explain how the process works and the potential financial impacts of voluntary car repo.

What Is Voluntary Repossession?

Voluntary repossession is the act of returning your financed vehicle to the lienholder voluntarily. The lienholder is typically a finance company or lender that holds a security interest in your vehicle as a condition of approving your car loan.

You may initiate car repossession voluntarily if you’re unable to make car loan payments and want the lender to repossess and sell your vehicle. This voluntary surrender of car ownership may eliminate your car loan debt fully or partially when the lender sells the repossessed vehicle.

What Happens If You Voluntarily Repo Your Car?

Before giving up the keys, it’s important to know what happens if you voluntarily repo your car.

After the vehicle is turned over and sold, the sale amount goes toward paying down the loan. While this helps reduce the loan principal, borrowers may still owe money and now face the burden of getting by without a personal vehicle.

What’s more, lenders may tack on costs from the vehicle sale to the outstanding loan balance. Voluntary repossession will likely mean a significant hit to your credit score, too.

At the same time, voluntary repo lets the borrower have a say in when and how the car is transferred to the lender. Depending on how far behind you are, the vehicle could be repossessed at any time. Coming forward to hash out voluntary repossession with the lender could avoid a scenario where your car is repossessed unexpectedly.

How Does Voluntary Car Repossession Work?

When a borrower is in default on their auto loan, they could be at risk of repossession. This is because the loan agreement generally gives the lender a security interest in the car, meaning they can claim the vehicle without notice if a borrower is missing monthly payments or lacking insurance.

To initiate a voluntary repossession, borrowers can contact their lender to let them know they are unable to make their payments and discuss options. If voluntary car repossession is the chosen path forward, the borrower and lender work out the arrangements to exchange the vehicle.

There are different types of car loans, including unsecured auto loans in which the borrower faces no risk of repossession.

The difference between secured vs. unsecured auto loans is that the financed vehicle serves as collateral on the secured loan, whereas borrowers pledge no assets as collateral on an unsecured car loan.

Recommended: Guide to Car Loan Interest Rates

Voluntary Repo vs Involuntary Repo

Losing a vehicle is not an ideal outcome. But there are some differences when a lender takes back a vehicle by voluntary repo vs. involuntary repo.

If a borrower is unresponsive, lenders may resort to involuntary repossession. This can involve hiring a third-party repossession agent to seize the vehicle.

GPS tracking makes it possible for agents to take the vehicle from anywhere at any time, even if it’s on your property. Lenders may also have the right to use a “kill switch” to remotely deactivate a vehicle depending on the loan agreement and state laws. In either case, involuntary repossession can create a stressful and inconvenient situation.

With voluntary repossession, the lender is spared the effort and cost of acquiring the vehicle. This cooperation may help work out a deal with the lender and obtain more favorable terms when refinancing after repossession.

Pros of a Voluntary Repossession

•  Gives you some control when returning your vehicle

•  You may avoid certain costs and fees

•  Avoids involuntary repossession

Cons of a Voluntary Repossession

•  You lose your car

•  It can damage your credit score

•  You may owe deficiency costs if the car has insufficient resale value

The Cost Associated With Voluntary Repossession of a Car

Voluntary repossession of cars may help alleviate the burden of monthly payments, but there are costs to be aware of, too. Here are some ways your finances could be impacted:

Deficiencies

Once a vehicle is turned over to a lender, they can sell it to get back the remaining loan amount. Borrowers may not be off the hook yet, however, if there is a deficiency balance after the vehicle is sold. This means that the sale amount is less than what the borrower still owes on their auto loan.

With a deficiency balance, the lender has the legal right to determine payment options — whether it be a lump sum or repayment plan. Lenders may also use a collection agency or take legal action to recover what’s owed.

Having a deficiency balance isn’t uncommon with vehicle repossession. According to Edmunds, more than one in four consumers currently have negative equity in their car loans, with the average negative equity being $6,754.

Late Fees

When you fall behind on car loan payments, you run the risk of accumulating late fees. Often, lenders provide a car payment grace period — typically in the 10-15 day range — to make a monthly payment before it’s considered late. But if you’ve passed that mark, you may have fees start to pile up.

Voluntary repossession may also trigger additional fees related to early termination of a lease, towing the vehicle, and storing it before auction.

Bankruptcy

If you’re struggling with debt beyond an auto loan, filing for bankruptcy may be the best option. Keep in mind that doing so could have long-term financial consequences, such as challenges with getting a future car loan.

How vehicle repossession fits in will vary based on the type of bankruptcy. With Chapter 7 bankruptcy, non-exempt assets, including vehicles, are liquidated to pay debts to creditors. Note that you must meet income requirements to qualify.

Although declaring Chapter 7 bankruptcy can get you out of paying any remaining balance after the vehicle sale, any cosigner on the loan is still liable for the deficiency.

Recommended: How to Get Out of Your Car Loan

Does Voluntary Repo Affect Your Credit?

Any failure to pay a lender according to the terms of a loan agreement can hurt your credit score. Typically, lenders report auto loan default to the major credit bureaus when it is more than 30 days late.

How much does a voluntary repossession affect your credit? Voluntary repo may cause your credit score to drop dozens of points if the lender reports your car loan account and delinquency history to the nationwide credit bureaus. Some consumers may see their credit scores plunge at least 100 points.

Voluntary car repossession may be recorded as a voluntary surrender on your credit report, whereas involuntary seizure of the vehicle may appear as repossession. In either scenario, this will remain on your credit report for seven years, though its impact will wane after a few years if you stay on top of your debt.

While there isn’t a set credit score needed to refinance auto loans, dipping below 660 will make it harder to qualify for prime loan terms.

Still, borrowers with less than ideal credit can explore guaranteed auto financing.

Impact of Late Payments

Falling behind on your car loan can damage your credit score, especially if you’ve fallen into serious delinquency. As mentioned above, lenders may report missed payments to the credit bureaus if you’ve fallen 30 days past due. The impact may become more severe if you fall more than 90 days past due on your loan repayment obligations.

Impact of Collections

Falling into serious delinquency on a car loan can result in your account being placed into collections. The lender or a third-party company may attempt to collect the unpaid debt from you. Having a car loan account in collections can appear on your credit report for seven years.

Stays on Your Credit Report

As mentioned earlier, lenders may report voluntary repossessions to credit bureaus. This derogatory mark may remain on your credit report for seven years.

4 Ways to Avoid Voluntary Repossession

Voluntary repossession may not be the best choice for your finances or personal life. These alternative approaches could help avoid turning over your vehicle to creditors:

1. Refinance Your Loan

Instead of parting with your vehicle, you can try working with your lender to refinance your auto loan despite bad credit. If you’re having trouble with payments, securing a lower interest rate and extending the loan term may allow for more affordable monthly payments.

This means you’ll likely end up paying more interest over the life of the loan, which is why lenders may be agreeable to refinancing before repossession.

2. Sell the Car

Lenders can sell the car at a public auction or privately depending on state laws. This is unlikely to fetch the best price, so selling the car yourself may be worth looking into.

Being able to sell your car is complicated by the fact that the lender has a lien on the vehicle since it’s collateral for the loan. You may need to pay off the loan first to get the lien cleared, which is usually challenging if you’re already behind on payments.

3. Communicate With Your Lender

Reaching out to your lender early on when you’re having difficulties with payments could make the difference in keeping your vehicle. Lenders could be willing to renegotiate your auto loan terms, especially if you let them know early on before late fees start to accumulate.

4. Reinstate the Loan

Reinstating a car loan after repossession may be an option in certain states. If your state and contract allow, you’ll need to request a reinstatement quote from the lender that outlines your right to reinstate.

This written notice should also state the amount needed to become current on the loan and the deadline for reinstatement — usually 15 days. Unless you can pay this in time, the lender can choose to move forward with selling the vehicle.

Recommended: No Income Verification Car Loans

How Hard Is It to Get Another Vehicle After Voluntary Repossession?

For some borrowers, it might be difficult to get another vehicle after initiating a voluntary surrender of car ownership. As mentioned earlier, a voluntary surrender of car ownership may cause your credit score to plunge. How much does a voluntary repossession affect your credit? It could damage your creditworthiness and make it harder for you to qualify for auto loan financing.

Getting another vehicle after voluntary repossession may not be feasible for consumers experiencing financial hardship. You may need all cash to buy another vehicle if you don’t qualify for auto loan financing with bad credit.

Recommended: Getting Out of Your Car Lease Early

The Takeaway

Voluntary vehicle repossession can have lasting financial consequences. Be sure to work with your lender and consider the alternatives available before handing over your car keys. Refinancing could be a good choice to secure a more manageable monthly payment and steer clear of repossession altogether.

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

Will a voluntary repossession hurt your credit score?

Yes, voluntary repo may cause your credit score to drop if the lender reports your car loan account and delinquency history to the nationwide credit bureaus. Some consumers may see their credit scores plunge at least 100 points.

Is a voluntary repossession better than an involuntary one?

Voluntary repossession may give you more control over the process, which might be better for you than losing your vehicle to involuntary repo. You may also face greater costs if the lender finds and seizes your vehicle through involuntary repo. Any form of repossession can damage your credit score, but a voluntary surrender may cause less damage than an involuntary repo.

How long does a voluntary repossession stay on your credit report?

Lenders may report voluntary repossessions to credit bureaus. This derogatory mark may remain on your credit report for seven years.

Photo credit: iStock/Jinda Noipho

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-Q325-063

Auto loan scams can deprive consumers of their hard-earned money. Some of the most common auto loan scams include car title loan scams, change in auto loan term scams, yo-yo financing scams, credit score scams, car loan fee scams, cosigner scams, and guaranteed loan scams.

Auto loan scams can occur online and at car dealerships. Below, learn about some of the most common auto loan scams plus tips on how you can avoid such scams.

What Is an Auto Loan Scam?

An auto loan scam is an unfair, deceptive, or criminal practice that defrauds or takes advantage of car buyers who need financing. Auto loan scams can also target car owners who apply for car title loans. As mentioned above, auto loan scams can occur online and at car dealerships.

Auto loan scams can have a damaging impact on consumers. These scams may result in car owners paying exorbitant rates of interest or being required to return their vehicle while being denied a refund of their down payment.

How Do Car Loan Scams Work?

Car loan scams work by taking advantage of consumers who want to borrow money. Any car owner who applies for car title loans could become a prime target of such a scam, and consumers who need financing to purchase a new or used vehicle could also become a target.

These scams could exploit consumers who may not be aware of their credit scores or aware of any state laws against predatory lending. Scammers may also target consumers who sign auto loan contracts without reading the documents or understanding the terms and conditions.

Auto loan scams can give car dealers unfair leverage over their customers and may cause customers to pay exorbitant rates of interest.

Recommended: Is an Auto Loan Secured or Unsecured?

Car Title Loan Scam

Car title loan scams may exploit motor vehicle owners who borrow money from car title loan lenders. Borrowers in this scam may sign car title loan agreements that include exorbitant rates of interest.

Perpetrators of this scam may impose interest rates exceeding 100% and may seize the vehicle as collateral if the borrower fails to repay the loan in full. At least 32 states plus the District of Columbia cap interest rates at 36% or less for $2,000 installment loan products.

Change in Auto Loan Term Scam

A change in auto loan term scam is an unfair practice in which lenders change the terms and conditions of a loan agreement after a borrower secures financing for a vehicle. Lenders may promise certain terms and conditions when selling the vehicle then later inform borrowers that they no longer qualify for the favorable loan terms.

Lenders who deploy this scam may offer new loan terms calling for borrowers to pay higher rates of interest as a condition of keeping the vehicle. Borrowers who refuse to pay the higher interest rate would be asked to return the vehicle.

Yo-Yo Financing Scam

Yo-yo financing scams occur when consumers buy a vehicle from a dealership that fails to honor the financing agreement. Dealers in this scam may contact borrowers days later and tell them that their auto loan financing application did not go through.

Car buyers in this scam are asked to return the vehicle, and these customers may also be denied a refund of their down payment. After the car buyer returns the vehicle, the lender may ask the customer to consider buying a different vehicle at a higher rate of interest.

Credit Score Scam

A credit score scam occurs when lenders of auto financing give false or misleading information about a consumer’s creditworthiness. Lenders in this scam may tell borrowers that their credit scores are too low to qualify for the best interest rate even if the borrower has good or excellent credit.

Victims of this scam may be unaware of their good or excellent credit scores and therefore might not realize the lender is pulling a scam. Certain credit monitoring services can give consumers access to their credit reports and credit scores.

The way how auto loans work is that banks, dealerships, or private lenders offer a financing plan to help consumers buy a new or used vehicle. Lenders may offer the best rates of interest to consumers with excellent credit, but scammers may ignore creditworthiness when imposing unfair rates of interest.

Car Loan Fees Scam

Here are some car loan fee scams:

Packing Payments

A packing payments scam occurs when dealers inflate the overall price of an auto loan by adding extra products, including supplemental insurance packages, that can provide dealers with additional revenue kickbacks.

Upfront Fees

An upfront fee scam occurs when lenders ask consumers to pay advance fees before processing an auto loan application. Scams like this can occur online, and victims may never receive the loan and may never hear from the lender after paying the advance fees.

Cosigner Scam

A cosigner scam occurs when borrowers apply for an auto loan with cosigner assistance, but the lender ends up putting the entire loan in the cosigner’s name.

A car loan cosigner can help borrowers with poor credit qualify for an auto loan. If approved by the lender, the borrower and cosigner would share the responsibility of repaying the loan.

Guaranteed Loan Scam

The guaranteed loan scam occurs when dealers promise that borrowers will receive auto loan financing regardless of credit history and then offer outrageous terms and conditions for the loan.

A guaranteed auto loan offers financing to all car buyers, including consumers with poor credit. Lenders may charge higher rates of interest on borrowers with poor credit.

Recommended: How to Shop for Auto Loans

Tips for Avoiding Auto Loan Scams

Here are some tips to avoid auto loan scams:

Get Independent Financing

Consumers can avoid dealer financing by shopping around for car loans from independent lenders who may offer preapproved car loans or car loan refinancing.

Know Your Credit Score

Knowing your credit score can help you avoid credit score scams. As mentioned earlier, certain credit monitoring services can give you access to your credit report and credit scores.

Blank Fields on Contract

Blank fields on a contract could signal trouble. Lenders may ask you to sign the paperwork without giving you time to read the contract, and then lenders could later insert language into the blank fields imposing unfair terms and conditions.

Unclear Interest Rate

Consumers can avoid signing auto loan contracts that fail to disclose the interest rate in clear language. A loan contract with an unclear interest rate could be a red flag.

Conditional Loan

Getting a preapproved or conditional auto loan before visiting a car dealership can help you avoid potential yo-yo financing scams. Once you find the car you want, financial institutions may finance the transaction with a fully approved loan agreement.

How Do You Know If You Have Been Scammed?

The following scenarios could point to an auto loan scam:

•  The lender changes the terms of your loan without your consent

•  You’ve paid upfront fees for financing and never received a loan

•  The lender is charging you an exorbitant rate of interest

•  The lender rushes you to sign a loan contract with blank fields

•  You buy a vehicle and the dealer later asks you to return the vehicle or pay higher interest.

Recommended: Car Usage and Ownership Statistics in the U.S.

What Can You Do If You Are a Victim of an Auto Loan Scam?

Victims of auto loan scams can file complaints with their state’s consumer protection agency and the Federal Trade Commission. Consumers with unfair auto loan terms may also file complaints with the Consumer Financial Protection Bureau.

What Should You Do If You Can’t Afford Car Loan Payments?

If you cannot afford making car loan payments, you may contact your lender as soon as possible and ask about possible relief options.

Lenders may be willing to negotiate a loan modification that could extend your repayment term and provide you with a lower and more affordable monthly payment. Refinancing may be an option as well. It’s likely you’d take out a new loan with lower monthly payments, but you’d probably pay more interest over the life of your loan.

If your circumstances change and you can afford to pay off your car loan early, that can improve your debt-to-income ratio and allow you to save on interest payments.

The Takeaway

Lenders who charge exorbitant rates of interest for auto loans could be predatory scammers. Other signs of a scam can include the rate of the loan changing unexpectedly or the lender having you sign a contract with areas that have not been fully filled out. Knowing the signals of a scam and being wary are good steps to take.

Auto loan consumers who cannot afford their monthly repayment obligations may consider auto loan refinance options.

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 to avoid auto loan scams?

Consumers can avoid auto loan scams by knowing their credit scores and seeking preapproved financing from independent lenders before going to a dealership.

How to know if you’ve been scammed?

You may be the victim of an auto loan scam if the lender took advantage of you with an unfair or deceptive practice. One of the signs of a scam is the lender changes the terms of your loan without your consent. Paying upfront fees and getting nothing in return is also a red flag.

What can you do if you are the victim of an auto loan scam?

As mentioned above, victims of an auto loan scam may file complaints with their state’s consumer protection agency and the Federal Trade Commission. Consumers with unfair auto loan terms may also file complaints with the Consumer Financial Protection Bureau.

Photo credit: iStock/erdikocak

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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If you encounter financial difficulties and you’re unable to repay your auto loan, there are ways to get relief from your debt. For instance, you could pursue an auto loan settlement.

But before you go this route, there are some downsides to an auto finance settlement. For instance, a car loan settlement might have a negative impact on your credit score. Weighing the advantages and disadvantages of auto loan settlement is crucial.

What Is an Auto Loan Settlement?

An auto loan settlement is an agreement between you and your creditor that allows you to pay off your car loan for less than the remaining amount you owe. Can you settle on a car loan? Yes. A settlement may become an option when you can’t make regular loan payments.

Recommended: What Is a Private Party Auto Loan?

How Do Auto Loan Settlements Work?

When it becomes clear that you will be unable to pay off your auto loan in full, your lender or a collections agency may come to you with an offer to settle. If you accept the offer and pay off the agreed-upon settlement amount, your debt is settled and you no longer owe any money on the loan.

Creditors and collections agencies may prefer car loan settlement to other options that might be much more time consuming and costly, such as car repossession.

Recommended: Guide to Gap Waiver

Can You Negotiate a Car Loan Settlement?

If you’re looking to get out of your car loan, you may be able to negotiate your car loan settlement amount. For instance, you could draw up a letter that states how much you’re able to pay and outline a payment plan that works for you and take it to the lender or collections agency. They may accept your plan or give you a counteroffer.

Be sure all the settlement negotiations are in writing so you have documentation of them. When a settlement is reached, get the terms of the agreement in writing as well before you send any money to collections or your lender.

Auto Loan Settlement vs Repossession

An auto finance settlement is different from a repossession. When you default on your auto loan, your lender may seize or repossess your vehicle and then sell it to recoup their losses. Or you may even choose voluntary repossession of the car so the lender can sell it.

If there’s a difference between the amount received from the sale of the car and the amount of money left on the loan, that’s what’s known as a deficiency balance. You’re responsible for paying it off. If you’re unable to pay the deficiency balance, you may be able to reach a settlement on the remaining debt with the lender.

Recommended: Can You Refinance Your Auto Loan After Repossession?

Things to Consider Before Settling Your Car Loan

Before you choose to settle your auto loan, there are some important factors to think carefully about. These include:

Impact on Your Credit Score

An auto finance settlement will have a negative impact on your credit score. A settled account stays on your credit report for seven years, and creditors will see that you were unable to pay off your loan. A low credit score can make it more difficult and expensive to secure credit in the future.

You May Avoid Default

Despite the impact on your credit score, settling your loan may sometimes be your best option. Creditors look more favorably on settling a debt than defaulting on a loan. In certain cases, settling your loan might put you on a faster track to rebuilding your credit over time.

You Could Owe Taxes

When a lender agrees to a debt settlement that’s less than the full amount of your loan, you might end up owing money in taxes. The IRS treats this kind of forgiven debt as income. As such, it’s taxed at your normal income tax rate.

If your lender forgives more than $600 in loan principal, they are required to send you an IRS Form 1099-C. Even if you don’t receive a 1099-C from the lender, you’re still obligated to report any forgiven debt amount as income when you file your taxes.

Alternatives to Auto Loan Settlement

Because of the negative impact on your credit score and financial future, an auto finance settlement is generally an option you’ll want to pursue as a last resort. Consider these four alternatives first.

Pay Off the Loan

If possible, the best option is to pay off your loan in full. In doing so, you’ll build your credit, making it easier to secure loans in the future. Perhaps you could borrow money from a family member, for instance, to make the full auto loan repayment.

Modify the Loan

As soon as you see that your loan payments are becoming unmanageable, contact your lender and ask if they can modify the loan to make it easier to pay. The lender may agree to defer your payments for a short time until you can get back on your feet. Or, they might lower your interest rate, extend your loan term, or change the due date of your payments. See what you can work out.

Sell Your Car

If you can no longer afford the loan payments, and public transportation is available, you could sell the car and use the proceeds to pay off your loan.

Refinance Your Loan

Refinancing a vehicle loan allows you to take out a new loan — preferably with a lower interest rate or more manageable terms — and pay off your old loan. A lower interest rate on the new loan will make your monthly payments smaller and reduce the amount you pay over the life of the loan. Extending your loan term may also lower your monthly payments, making them easier on your budget. But be aware that with a longer loan term, you may end up paying more in interest over the life of the loan.

Once your loan application is approved and when the car loan is finalized, the new terms or rates will kick in.

Recommended: 8 Tips on How to Refinance an Auto Loan

The Takeaway

If you can no longer afford to repay your auto loan, there are several options to explore before you consider an auto loan settlement. For instance, modifying or refinancing your loan could help you pay what you owe, while also protecting your credit score and financial future.

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

Can you do a settlement on a car loan?

If you’re no longer able to make your car loan payments, a car loan settlement may be an option to explore to help pay your auto loan debt for less than you owe. Just be sure to weigh the pros and cons of auto loan resettlement first.

Does settling an auto loan affect your credit score?

Settling an auto loan will have a negative impact on your credit score. An auto loan settlement will remain on your credit report for seven years and could affect your ability to get loans in the future.

How long does a car refinance settlement take?

The length of time an auto loan settlement takes varies by lender and other parties that may be involved, such as collections. If you’re in danger of defaulting and you think an auto loan settlement is your best option, reach out to your lender to start the process as soon as possible.

Photo credit: iStock/Jinda Noipho

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.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

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