Can you return a financed car without getting a penalty?

You cannot return a financed car without a penalty. There will likely be a cancellation fee involved and your credit will be negatively impacted. Also, you'll likely still owe some money on your loan. To avoid the penalties for returning a leased car, consider alternative options such as selling the car, trading it in for a different one, transferring your loan agreement, refinancing your loan, or asking the dealership to adjust your payment schedule.

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Rachel Bodine graduated from college with a BA in English. She has since worked as a Feature Writer in the insurance industry and gained a deep knowledge of state and countrywide insurance laws and rates. Her research and writing focus on helping readers understand their insurance coverage and how to find savings. Her expert advice on insurance has been featured on sites like PhotoEnforced, All...

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Written by Rachel Bodine
Feature Writer Rachel Bodine

Dan Walker graduated with a BS in Administrative Management in 2005 and has been working in his family’s insurance agency, FCI Agency, for 15 years (BBB A+). He is licensed as an agent to write property and casualty insurance, including home, auto, umbrella, and dwelling fire insurance. He’s also been featured on sites like Reviews.com and Safeco. He reviews content, ensuring that ex...

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Reviewed by Daniel Walker
Licensed Auto Insurance Agent Daniel Walker

UPDATED: May 5, 2022

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Things to Remember

  • There’s no way to return a financed car to a dealership without receiving some sort of financial penalty
  • Returning a financed car — or having it voluntarily repossessed — will negatively impact your credit score
  • Consider alternatives to returning your financed car such as selling it, trading it in, transferring your auto loan, talking to the dealership about adjusting your payment schedule, or refinancing your loan

Financing a car may be a more affordable option than buying a car outright, but car loan payments can still accumulate to the point where they’re hard to sustain. You may find yourself wondering if you can return a financed car without a penalty.

However, returning a financed car isn’t as simple as driving it back to the dealership lot and obtaining a refund. If you need to return a financed vehicle, you may be putting not only your money — but also your credit rating — at risk. When and how you return a financed car can make a considerable difference as to how much doing so will cost you.

With this guide, we’ll review the options available for returning a financed vehicle and help you find a way to return a car while avoiding a harsh penalty. You may also want to view our resources for finding cheap auto insurance as well as our auto insurance tips. Loan payments coupled with expensive auto insurance often make it difficult to finance a car on a budget.

As is the case with financing a car, auto insurance can be expensive if you can’t find a policy that’s right for your needs. Enter your ZIP code into our free online tool to compare auto insurance rates and find an affordable plan.

How can you return a financed car without being penalized?

You can return a financed car back to the dealer. However, you cannot do so without being penalized in one way or another. That said, by communicating with the dealership and considering all your options, it’s absolutely possible to evade a car loan without losing a small fortune or ruining your credit.

Before we mention how you can reduce the severity of penalties for returning a financed car, let’s examine a few of the most common reasons why some drivers might return a car for which they haven’t fully paid:

  • A change in their financial situation (job loss, auto insurance costs, etc.), causing loan payments to become unaffordable
  • A move to a new city where the driver doesn’t want to bring a car at all or prefers not to bring their current vehicle
  • A car that seemed fine when purchased may have a number of hidden issues that a driver discovers before they’ve paid off their loan
  • A driver has decided that the car they’re financing isn’t right for them

You may be wondering how to let a car go back without ruining your credit. Except for any special circumstances outlined in your financing agreement, you won’t be able to return a financed car without facing some type of penalty. But, depending on why you’re trying to return your financed car, you may have some other options worth considering. For example, if you’re in the process of finding a new job, you can request that your dealership allow you to skip a few payments while you search for work. These missed payments can then be added to the end of your loan term.

Likewise, if you’ve discovered numerous problems with your car, you may be able to trade it in at the dealership for a different vehicle instead of returning it. As long as your financed car’s value hasn’t depreciated too much since you began driving it, trading it in can leave you with a more affordable car and a loan that’s easier to pay off.

And if you’re moving to a place where you won’t need a vehicle or you’ve decided that the car you’re financing isn’t right, you can find someone to take over your loan payment. This is often a win-win situation, since you escape your loan payments entirely, and the person that you find to assume your loan receives a great deal on a car. Talk to your dealership about their policies for loan transfers.

What are the penalties for returning a financed car?

Most of the penalties for returning your financed car should be outlined in your loan agreement. Financing cancellation fees are the most common cost associated with breaking a car loan agreement before your term expires. Your financing agreement should disclose the total cost for cancellation.

Here are the penalties you can expect for returning a car that you’re still paying off:

  • Loan cancellation fees ($200 – $500 flat cost in most cases)
  • Your credit score will be negatively impacted since lenders will be less confident in your ability to make reliable payments on a loan
  • Depending on the actual return value of your financed car, you may still owe money on the loan after you bring it back to the dealership

Will returning a financed car affect your credit?

Yes, returning a financed car will negatively impact your credit score, particularly if you choose to have your car voluntarily repossessed. According to Credit Karma, voluntary repossession appears on your credit report and can make future loans difficult to receive. The reason for this is straightforward: Lenders lose confidence in your ability to make consistent payments after you reveal that you aren’t able to pay off your loan or otherwise violate your agreement.

Although you may have had entirely valid reasons for returning your financed car, lenders are more concerned with your ability to make payments than anything else. To limit damage to your credit score, consider refinancing your car loan with a low interest loan that you can pay off comfortably over several years.

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What can you do instead of returning your financed car?

Based on what we’ve mentioned above, you’ve probably already determined that returning a financed car isn’t the best option for the health of your wallet or your credit rating. Fortunately, there are several alternatives to returning a financed car, including trading it in, selling it, and transferring the loan.

Review the table below for alternatives to returning a financed car.

Alternatives to Returning a Financed Car

Alternatives to returning a financed carProsCons
Trade the car in to the dealershipGood option if you still want to have a car while lowering the amount you owe the dealershipThe actual value of your car may be less than the loan amount you have remaining, meaning you pay for a car you don't drive
Sell the financed carMakes it easier to pay off the lease directly without having to go through the dealershipThe actual value of your car may be less than the loan amount you have remaining, and it may be difficult to find a buyer. You won't have a car
Transfer the lease for the carYou may be able to get out of lease payments entirely while avoiding cancellation feesMay be difficult to find someone willing to take your lease, especially before your next payment is due. You won't have a car
Talk to the dealership about skipping upcoming paymentsGood option if you're dealing with temporary financial difficultiesYou'll still owe the same amount on your loan. The dealership may not allow you to skip payment dates
Refinance your loanGood option for keeping your car while protecting your credit scoreYou'll still owe the same amount on your loan. And you may have to make payments for a much longer period before your car is fully paid off
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Can you sell a car you’re financing?

If you’re wondering how to sell a financed car without paying it off, you have options. You can sell a car even if you’re currently financing it. Keep in mind that if you sell your financed car to someone else, you’re still responsible for the financing agreement and will need to pay off the amount that you still owe. If your car’s actual value has depreciated considerably since you bought it from the dealership, selling your car may not be your best option.

And since you don’t hold the title for your car, the process of selling your financed car to a private buyer can be a bit complicated, as you’ll need to communicate with both the dealership and the buyer to transfer ownership.

What to Remember About Returning a Financed Car

  • Returning a financed car — or having it voluntarily repossessed — will negatively affect your credit rating, and you’ll have to pay a cancellation fee of $200 – $500 in most cases
  • Consider alternatives to returning your financed car, including selling it to a dealership or private buyer, trading it in for a more affordable car, or transferring the loan to someone else who’s willing to pay it off
  • If you’re struggling to pay off your loan, consider talking to the dealership about providing you more time to make payments on your loan, or refinance your loan at a lower interest rate

Are you searching for affordable auto insurance that gives you all the coverage you need? Try our free online quote tool to compare rates from different insurance companies and find a plan that’s right for you.

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