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Can I Get Out of a Car Loan without Ruining My Credit?

Dear Experian,

If I voluntarily surrender my vehicle and I pay off the settlement balance of the difference between what they sold it for and what I still owe, will it still impact my credit score?

– DGS

Dear DGS,

Voluntarily surrendering your vehicle will have a negative impact on your credit scores because it means that you did not fulfill the original loan agreement. When you voluntarily surrender your vehicle, the lender will sell the car to recover as much of the money owed as possible. If the car is sold for less than the amount you owe on the loan, you will be responsible for paying the remaining amount.

In your case, you mentioned paying a settlement balance. If your lender has offered you a settlement, they are agreeing to take a loss on the remaining debt in order to close out the account. While paying a debt in settlement is better than not paying it all, a settled account is still considered negative because it means you did not pay the lender the full amount that was owed.

Options Other Than a Voluntary Surrender or Repossession

If you are struggling to make payments on your car loan and want to avoid harming your credit rating with a voluntary surrender or repossession, there are some options for you to consider:

  • Selling the vehicle – If your car is worth as much as or close to the balance on your account, selling it could enable you to pay off the loan without harming your credit. Even if the amount you sell it for doesn’t cover the full amount of the loan, you may be able to refinance the remaining balance, making your payments smaller and much more manageable.
  • Allowing someone else to take over payments – If your lender allows, you may be able to transfer your loan to another individual who will take ownership of the vehicle and assume the loan payments. It’s always best to contact your lender to discuss your options before falling behind on payments.
  • Refinancing the loan – If your current interest rate is on the higher end and your credit is good, you may be able to lower your payments enough to keep your car by refinancing your loan at a lower interest rate.

Thanks for asking,
The “Ask Experian” Team

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