SoFi

If you have imperfect credit or a limited credit history and need to finance an automobile purchase, you may qualify for a subprime auto loan. These loans are relatively risky for lenders to take on, so they may carry less favorable interest rates, and lenders may require you to provide additional information about your finances.

Here’s a close look at what subprime loans are, how they work, and the potential risks of accepting one.

What Are Subprime Auto Loans?

The definition of a subprime auto loan is a loan given to borrowers with poor credit or those who have no or limited credit history.

A borrower’s credit is largely represented by their credit score — a three-digit number ranging from 300 to 850. Higher scores represent good credit, while lower scores represent poor credit.

There is no one definition of a subprime score. For example, the Consumer Financial Protection Bureau defines subprime as credit scores between 580 to 619. On the other hand, Experian®, one of the three major credit reporting bureaus, defines subprime scores as running between 580 to 669.

As a general rule of thumb, borrowers with scores less than 650 are less likely to qualify for traditional auto loan financing than those with higher scores. However, due to the qualifications of subprime loans, you can still qualify for a car loan with a low credit score, such as 650 or below.

How Do Subprime Auto Loans Work?

Lenders see borrowers with low credit as at risk for defaulting on their loans. As a result, subprime loans are a risky move for creditors. To help offset some of this risk, subprime loans often carry higher interest rates than traditional auto loans, and in some cases, additional fees.

Subprime lenders may ask to see additional documentation to help establish your financial stability. For example, they may ask to see bank statements, pay stubs, and tax forms before they’ll approve your loan.

How Does Credit Score Affect Subprime Auto Loans?

The three major credit reporting bureaus — TransUnion®, Equifax®, and Experian® — collect information about your payment history from your creditors into your credit report. Your credit score is important because it is a synthesis of this information in a single number.

If you have a long history of working with creditors and paying your bills on time, you will likely have a higher credit score. If you are prone to making late payments, missing payments, or you’ve defaulted on a loan, you likely have a lower score.

The Fair Isaacs Corporation (FICO®) is one of the companies that produces credit scores. It rates credit scores according to the following:

•  Poor: 300 to 579

•  Fair: 580 to 669

•  Good: 670 to 739

•  Very Good: 740 to 799

•  Exceptional: 800 to 850

The higher your credit score, the more likely you are to qualify for new credit with favorable terms and lower interest rates. The lower you score, the harder it will be for you to secure new credit.

Recommended: What Does a Lemon Car Mean?

What Is the Maximum Loan Amount I Can Get With a Subprime Auto Loan?

Subprime lenders may have a more rigorous approval process; however, that doesn’t mean that they’ll have maximum loan limits. In fact, the amount that a lender is willing to loan you is at their discretion and will depend on your personal financial situation, your creditworthiness, and the amount of risk they’re willing to take on.

If you can only qualify for a subprime auto loan, it’s important to be realistic about what kind of car you want to buy. Don’t aim for the priciest vehicle you get with a subprime loan. Rather, be sure to choose one that fits your budget and for which you will be able to make on-time monthly payments.

Recommended: How Many Car Payments Can I Miss Before Repo?

The Risks of Subprime Auto Loans

Before signing up for a subprime auto loan, be sure to understand the potential drawbacks.

Interest Rates

Subprime auto loans tend to carry much higher interest rates than their traditional counterparts. Consider that in the first quarter of 2025, the average prime auto loan rate for a new car was 6.70%, while the average subprime rate was 13.22%.

Higher interest rates can significantly increase the amount you pay for your vehicle. Consider this example: If you want to buy a $30,000 vehicle with 10% down and interest rate of 6.89% over 72 months, you’ll end up paying $4,475 in interest over the life of the loan. However, that same vehicle with a 12.85% interest rate will cost you $8,793 over the life of the loan.

Fees

In addition, subprime loans may be subject to higher fees, including procession and origination fees, prepayment penalties, and service contracts.

Repossession

The risk of default is higher for people with subprime loans. If you can no longer make loan payments, your lender may repossess your car, selling it to recoup some of their losses. Default and repossession can hurt your credit score, making it more difficult to secure a loan in the future.

Recommended: What Are Small Car Loans?

Examples of Subprime Auto Loan Interest Rates

Understanding the auto loan interest rates available to subprime borrowers as well as borrowers with other interest rates can help you understand how much the total cost of your vehicle will be when you’re wondering when to refinance a car.

It may be worth it to do what you can to improve your credit score — by paying off debts and paying bills on time — to qualify for more traditional rates.

Here’s a look at first quarter 2025 average interest rates by category, according to data from Experian.

Refinance a Subprime Auto Loan

If a subprime auto loan is all you qualify for, know that you aren’t necessarily stuck with it forever. You may have the opportunity for a subprime auto refinance.

When you refinance an auto, you replace your old loan with one — hopefully one with a lower interest rate. Look into a refinance if you build your credit and you can qualify for a lower rate, or when interest rates drop.

Be sure you understand the pros and cons of refinancing an auto loan. For example, while you may lower your interest rate, one disadvantage of refinancing is that fees can add to the cost of refinancing. In some cases, the cost of fees can cancel out the gain you’d receive from a lower rate.

In terms of how soon you can refinance your auto loan, you can refinance almost immediately, but you may want to wait until your finance situation improves.

The Takeaway

If you have poor credit or you’re working on building credit for the first time, you may only qualify for a subprime auto loan. Be sure to consider the risks, and if buying a car isn’t pressing, consider doing what you can to build your credit score before applying for an auto loan again. That way, you may qualify for lower interest rates and end up paying less over the life of the loan.

If you do end up with a subprime loan, you won’t necessarily be stuck with it forever, as you can always consider 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.

FAQ

What is considered a subprime auto loan?

Generally speaking, subprime loans are offered to borrowers with credit scores of about 650 or less.

What is the maximum loan amount with a subprime auto loan?

There is no set maximum, but loan amounts will vary by lender depending on your creditworthiness and their willingness to assume risk.

What is the average subprime auto loan rate?

The average subprime auto loan rate for a new car is 13.22%, according to data from credit reporting bureaus Experian.

Photo credit: iStock/Pawel Kacperek

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.

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

SOALR-Q325-118

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