Can You Get Out of a Car Lease or Change the Terms of an Auto Loan? A Guide for New York, California, Texas and Alabama Residents
Forbes is reporting that less people are leasing cars due to interest rates and fears for the future economy.
It used to be that it was very hard to end a car lease early.
Car loans are presenting people with a different problem. Those who bought cars in the last year may have gotten high interest rates. Car dealers often tell car buyers, "Don't worry. Once you make six months of payments, you can refinance." But interest rates are getting higher, not lower. So that isn't happening to many people.
What happens when you find yourself struggling with a bad car loan or a car lease you can't afford? The situation can seem inescapable, but there are some legal options.
Evaluate Your Loan
First of all, it is important to determine what constitutes a bad loan. Factors like your credit score, your income and the terms of the loan will determine the interest rate on your car loan. Longer term loans, like 72- and 84-month loans, will likely carry higher interest rates.
Is your interest rate too high (higher than it should be taking into account your income and credit score)? Was the car’s selling price higher than it should have been? Is the trade-in value of the car too low? If you answer “yes” to any of these questions, you may find that you are struggling with a bad car loan. It is possible that you will find yourself “underwater,” meaning you owe more on the car than it is actually worth.
Take a look at your loan terms and determine the severity of the situation: how much you owe, your interest rate and your ability to pay.
Talk to Your Lender
If you are struggling to pay your car loan, talking to your lender is a good first step. Your lender may be understanding and willing to renegotiate to help you with an underwater loan. Many car dealerships, who leased cars three years ago, are happy to end leases early because there's such a shortage on used cars for sale. Just call and ask.
Consider Your Options
Some lenders will not be willing to help, which means you will need to consider a different option.
- Cancel extra coverage. The car salesperson may have suggested some extra coverage that sounded great at the time, like an extended warranty. Check to see if you can cancel any extra coverage and receive some of your money back.
- Refinance the loan. Refinancing the loan may help you secure a more favorable interest rate, effectively lowering the amount of money you owe. You can shop your loan around to different lenders to find a better rate.
Trade in the car.
You can look into trading in your car for something less expensive. This will not erase your debt if you are underwater. The car you are trading in will serve as a down payment on your new vehicle, and the excess amount you owe will be transferred to your new loan. When trading in for a less expensive vehicle, you may be able to at least lower your debt. Whenever you take out a car loan, carefully consider the terms of the loan, including its length and the interest rate.
Have a lawyer write a letter.
Sometimes, all it takes is for a lawyer to send a strongly worded letter to a financing company or dealership to get them to lower your rate, or end your lease early. Our lawyers know exactly what to say, and how to say it.
This article is intended to convey generally useful information only and does not constitute legal advice. Any opinions expressed are solely those of the author, not LawChamps.
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