Car Finance

How to Get Out of a Bad Car Finance Contract


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Let’s say that you purchased a vehicle last night and, after re-reading all of the paperwork, you realize that you are involved in a situation that can lead to bad car finance. What can you do about it? Try the following steps:

Step 1. Re-read the Contract

It is recommended that you re-read the contract again, paying close attention to anything that looks like “buyer’s remorse”. In many states, you have 72 hours in which to cancel the contract and simply return the vehicle to the dealership. You may have found that the new vehicle has just thrown your finances too far out of balance, or you may simply not be able to afford it.

Step 2. Contact Finance Company

Talk with the dealer and finance company and explain the situation to them. Ask them if you can cancel the deal. Many dealerships will say yes to this and will take the vehicle back if you agree to return it immediately with the first interest payment. Remember that interest begins to pile up on the loan as soon as you sign on the dotted line, so you will have to pay at least the first interest payment before the dealership will let you out of the deal; if they will allow you to cancel the car loan.

Step 3. Look for an Alternative Finance Company

Look into car refinance with a different lender. If you don’t like the terms of the loan you have received from your current dealer or finance house, go to a cooperative bank or credit union to see if you can refinance the loan. If you can, you will likely be able to lower the monthly payment and/or interest, and you may be able to change the length of the loan so it is more favorable to your budget.

Step 4. Sell the Car to Oneself

Although this isn’t highly recommended, it will help you to retain your credit rating as you will be selling the car yourself. Simply call the bank or credit institution where you obtained financing and see what the final payoff figure is. Each loan has one and you can exercise it from day 1 if you would like to. Once you have the final payoff figure in hand, place a sign in the window announcing the car is for sale, and maybe buy a classified ad in the local car shopper or penny saver magazine. See if you can get a figure – supposing you find a buyer – that is near the payoff figure so you can payoff the vehicle and be done with it. However, if you can’t get a figure that is close to the payoff, at least getting something for the vehicle is better than trying to walk the line that strains your budget.

Step 5. Let Bank take Repossession

Of course, you can skip two or three payments and let the bank or dealership do a repossession. However, this will hurt your credit. The way this works is that the bank takes over the car and then sells it at auction for what it can get. You are responsible for the balance, if it doesn’t sell for more. A variation on this is just driving the vehicle back to the dealership and doing a voluntary repossession. Again, it will hurt your credit and you will be responsible for the difference.

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