Car Buying

How to Let a Car Go Back Without Ruining Credit

Learn how to return a financed car without negatively impacting your credit score, and explore the alternatives such as negotiating with the lender or voluntary repossession.

Read time

10 minutes

Date

08.29.2023

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If you’re in financial hardship or simply want to know the ways you can back out of a car loan, returning your car is likely the best option. But with returning a car, you’re probably thinking: is it possible to do so without ruining your credit? Luckily there are ways around getting on top of your finances while minimally affecting your credit score.

Credit score and car buying

Your credit is key when buying a car. The better your credit score and history, the more likely you'll qualify for good financing rates and terms on your auto loan.

What does having credit mean?

Your credit score acts like a report card for lenders - it shows how you've handled money in the past. Good credit tells a lender that you're financially responsible and likely to repay debts. That's why a high score can open the door to better loan rates and terms. 


On the flip side, bad or no credit signals you're a riskier borrower. Maybe you've missed payments before or defaulted on past loans. With little evidence you can manage debts wisely, lenders will be wary of approving you. When they do, expect higher rates and strict requirements.


Responsible money management leads to good credit and good credit saves you big on financing for major buys like a home or car. So build your score by paying bills on time and keeping debt low. The better your credit, the more cash you can save when credit matters most.

What is a credit score and how does it work?

Your credit score is like your financial report card - it's a three-digit number usually between 300 and 850 that gives lenders a quick snapshot of how risky it is to loan money to you. Higher scores signal you're a lower credit risk, while lower numbers mean you're considered more of a risk. 


These key factors shape your credit score:

  • Payment history: Have you paid bills and debts on time? Late payments can drag down your score.
  • Credit utilization: How much of your available credit are you using? High balances hurt your score. 
  • Credit history: In general, the longer your history, the better.
  • New credit: Opening lots of new accounts can indicate higher risk and lower your score.
  • Credit mix: Having different types of credit (credit cards, loans, etc) helps your score.


Credit bureaus like Equifax, Experian and TransUnion use complex formulas to turn this information into a credit score. Checking your own score from them periodically lets you know where you stand. The better your number, the more likely lenders will approve you for new credit and offer lower interest rates - saving you big money over time. So your credit score can open financial doors if you work to keep it high.

Why do you need a good credit score to buy a car?

When it comes to buying a car, a good credit score can make the process smoother and more affordable. It increases your chances of being approved for a car loan and allows you to access more favorable interest rates, potentially saving you thousands of dollars over the life of the loan. On the other hand, a poor credit score can make it challenging to obtain financing or result in higher interest rates, making the car buying experience more expensive. 


Another alternative when shopping for your next vehicle is subscribing to a car. FINN offers six to 12-month hassle-free car options to those who are searching for their next car. Without the headache of arranging insurance, inspections, and maintenance, FINN has a single monthly fee that bundles all of these in.

How can you return a financed car without affecting credit?

Returning a financed car can have implications for your credit, but there are five solid steps you can take to minimize the negative impact. 

1. Communicate with your lender

First, talk to your lender about your situation and ask about alternatives like lower payments or a voluntary repossession agreement. Being open sets the tone.

2. Voluntary repossession with an agreement

If repossessing, ensure clear terms on handling any remaining loan balance when the car sells. A plan prevents surprises.

3. Paying off the deficiency

Take care of any leftover deficiency after the car sells. Offer to settle for less than owed. Don't leave unfinished debt.

4. Verify the reporting

Watch that the lender accurately reports the repossession details to credit bureaus. Mistakes make things worse.

5. Build positive credit

Even if your credit takes a hit at first, rebuild by making payments on time and keeping balances low. 


Staying proactive by communicating with your lender and monitoring your credit means returning a financed car doesn't have to hurt you long-term.

Alternatives to returning a car

Returning a financed car may seem like the only option when facing financial hardship. However, before going down that route, know there are alternatives to explore first. Taking the right steps can help you keep your car and avoid further credit damage.

Refinance the loan

If you can qualify for a lower interest rate with another lender, refinancing the auto loan can make the payments more affordable. This allows you to keep the car without damaging your credit through voluntary repossession or missed/late payments.

Sell the car to pay off the loan

Selling the car for at least what you still owe allows you to pay off the full loan balance. This closes the loan positively and avoids credit damage from repossession. Be sure to follow proper procedures for selling a car you don't fully own.

Voluntary repossession as a last resort 

If refinancing or selling the car aren't options, voluntarily repossessing it to the lender can be a last resort. This damages your credit, but not as severely as defaulting on the loan. Communicate with the lender early and return the car in good condition to minimize the impact.

Explore loan modification programs

Some lenders offer special programs to modify auto loans for borrowers facing financial hardship. Adding extra months to the loan term or temporarily reducing payments can help avoid repossession while keeping payments affordable.

Consider debt consolidation 

If high monthly payments are unmanageable, consolidate debts through a new personal loan or balance transfer credit card with a lower interest rate. This can reduce overall monthly payments to something more sustainable. The key is exploring all options that allow you to either refinance, sell, or modify the loan. This avoids the credit damage of repossession or default. Manage the situation proactively to find the best resolution.


With FINN, you can enjoy the benefits of a new car without the hassles of ownership. FINN's new car subscription service includes insurance, maintenance, and taxes, providing comprehensive coverage for your vehicle. Schedule for your car to be delivered right to your doorstep, adding even more convenience to the equation.

Car buying and credit FAQs

Below you'll find straightforward answers to common questions on loans, credit and minimizing damage when handing the car back. The goal is to walk through this process informed so you can protect your finances as much as possible. Knowledge is power, so let's get you up to speed.

How can I get out of a car loan without destroying my credit?

Wanting to get out of your car loan without trashing your credit is tricky, but not impossible. First, appeal to your lender - see if they'll refinance the loan or extend the payments. Making it more affordable may allow you to keep the car. Selling the car and paying off the loan with the money is another route. But if it's worth less than you owe, be ready to cover the difference. 


The key is talking to the lender to explain your situation and negotiate the best option for you. Maybe they'll agree to a short sale. Acting early gives you more leverage. With some creativity and compromise, you can likely find an exit strategy that minimizes fallout to your credit. It just takes being proactive and exploring every alternative.

Can you remove car repossession from a credit report?

To erase a car repossession from your credit history is difficult, but you certainly have some options to do so. You should scrutinize the repossession entry on your credit reports. If there are any errors in it, you can dispute it with the credit bureaus and potentially get it removed. Negotiating with the lender is another route. As part of a settlement deal, some may agree to delete the repossession in exchange for you paying a portion of the debt. This is called "pay for delete."


Just know there's no guarantee of getting a repossession completely deleted. The mark may stick on your credit reports and hurt your score for years. So before things reach that point, act fast and work closely with your lender to prevent repossession from happening at all. But if it does happen, dispute any errors you spot. Removing incorrect data helps limit the damage.

How long does a repossession stay on your credit?

A car repossession can haunt your credit score up to 7 years from the date it happened. Having a repossession on your report signals major risk to lenders. It can slam your credit score and make getting approved for new credit really tough.


The good news is the stain does fade over time. As the repossession ages, its impact on your score gradually decreases.  So focus on rebuilding by making payments perfectly on time and keeping credit card balances low. Show you've changed your money habits. With consistent good financial behavior, you can slowly offset the negative mark. Just know it takes patience for the credit damage to dissipate. 


How bad does losing a car hurt your credit?

Losing your car can hurt your credit quite a bit unfortunately. 


Having your car repossessed or surrendering it voluntarily is seen as a major negative event by lenders. They'll view you as high-risk. Expect your credit score to take a big hit, maybe over 100 points or more. That makes getting approved for financing in the future much harder. You'll likely pay higher interest rates too.


The repossession will stay on your credit reports for up to 7 years also, flashing that red flag to lenders for a long time. The good news - again - with diligent work, you can rebuild your credit over time. Make payments flawlessly, lower debt, and let the mark slowly fade. Patience and good money habits will help offset the damage. 

How to Let a Car Go Back Without Ruining Credit

Final thoughts

Returning a financed car without damaging your credit is possible by following specific steps. It's important to assess your financial situation, communicate with the lender, and explore alternatives such as voluntary repossession or selling the car. 


If you want to be on the safe side with your credit score, pick a car subscription from FINN. With a FINN car subscription, finding your next car and getting approved is easy and you’ll never have to worry that it will hurt your credit score. Pick the perfect car and customize your lease terms online. Get approved in minutes with minimal hassle.