Most people hate negotiating car prices. But when it comes to your car loan, negotiating an early payoff could save you big money.
Be aware, though, not all lenders will negotiate a payoff quote for a car, and a car loan balance settlement will impact your credit.
Some lenders negotiate early car loan settlements, and some don’t. Following these steps can improve your chances of a successful negotiation, save you money and reduce the damage you could do to your credit in the process.
Keep making payments
If you can, stay current on your loan payments. Even if the car is totaled, you’re still obligated to pay back the loan.
Missing just one payment could have a list of unwanted consequences, including:
- Fewer options for working out a solution with the lender
- Damage to your credit scores
- Late fees and extra interest charges
Confirm what you owe
Before making an offer, check the balance on your loan. Your balance can change from one day to the next, and it might not match your last loan statement.
You can find the information by logging into your online account or contacting your lender.
Depending on the amount, you might decide you can afford to pay it all off instead of negotiating. If not, the next step is to request a payoff quote from your lender. The payoff quote document shows the cost to pay off your loan in the next seven to 30 days, including interest.
Why is my payoff amount more than what I owe on my car?
Your payoff amount can be more than your current loan balance because your balance doesn’t include future interest charges and any unpaid fees you might have. Each day you owe money on the loan, you can accrue more interest charges.
Look at the big picture
Settling an auto loan can change your financial situation … and your credit scores. Consider these questions before negotiating:
Does your lender negotiate payoffs?
Your options depend on your lender and loan contract. For example, your lender may offer hardship payment options but no payoff negotiating.
Start by checking to see if your contract or the lender’s website specifies any policies about payoff amounts and negotiation.
Can you afford a settlement?
Look at the real cost of paying off the loan before you negotiate to be sure it’s affordable.
Besides the payoff amount, make sure you can cover costs such as any prepayment penalties or taxes on the forgiven debt.
Is a loan payoff the best use of your money?
Don’t let financial stress drive your decision. You could end up in a worse position if you cash out your savings or take money away from necessities to pay off a loan early.
Before negotiating, ask yourself if the funds could be better used for another expense. For example, if you have credit card balances or other higher-interest debt, you might be better off paying those down first.
But if early payoff is the only way to avoid repossession or missing car payments, it could be the right choice. If you’re not sure, talk to a free or low-cost certified credit counselor to discuss your options.
How will a loan payoff settlement affect your credit?
It’s impossible to say how your credit score will change if you negotiate a settlement. Settling a loan can affect your credit file in a few different ways:
- Positive: Reducing your debt, which can lower your debt-to-credit ratio
- Positive: Preventing future missed payments and the credit damage they would cause
- Negative: Closing an active loan account
- Negative: Not paying off the full loan amount
Talk to your lender
If you decide to negotiate, the next step is to contact your lender. Plan out ahead of time how you will present your case.
Here are some tips to work out the best possible deal:
- Say you want to avoid repossession: Vehicle repossession is bad for you and the lender. They’ll be more likely to negotiate with you if it helps them avoid the expensive and time-consuming process of repossessing your car.
- Offer the wholesale value of the car: If you pay off the wholesale value of the car, the lender will make just as much money as it would if it sold the car at a used-car auction (after repossessing it), except without the fees and labor costs. You also benefit, since the wholesale value can be less than the retail value.
- Don’t agree to more than you can afford: Be clear about how much you can afford to pay. If you don’t send the amount you agree on, the lender can consider you “late” on your payment and might begin the repossession process.
- Tell the lender you’re considering bankruptcy: Filing bankruptcy stops lenders from attempting to collect payments and property from you. By comparison, settling may be a much better option for the lender, since you offer to send money voluntarily.
- Be polite. Negotiating can be stressful, but don’t burn a bridge with your lender. If you find yourself getting frustrated, politely end the call and reach out later to speak to a different agent.
Can’t keep up with your car payments? Learn more about how to get out of your car loan.
Get everything in writing
A verbal agreement isn’t worth much. After you negotiate with the lender, write down the agent’s name and contact information and request the details of the agreement in writing. Doing so will make sure the lender can’t try to collect the full loan balance from you later.
Before sending money, make sure you get a document with all of the following details:
- The correct settlement amount
- Your loan account number
- The fact that your settlement will be accepted as “payment in full” for the loan balance, including any outstanding fees
- The form of payment that is to be submitted
- The due date for your payment
Downsides to negotiating a car payoff balance
There will be downsides to breaking your original car loan contract. Make sure the consequences don’t outweigh the benefits of your settlement.
- Lender fees: Some loans have prepayment penalties, which are fees for paying the loan off early.
- Damage to your credit: For seven years, your credit reports will show that you settled a debt for less than the full amount owed, which can turn off future lenders.
- Tax consequences: If you have more than $600 in debt forgiven, you will likely be required to report it as taxable income via a 1099-C form.
If negotiating a settlement isn’t the right option for you, consider these other ways to manage your auto loan debt.
Loan modification
Many lenders have payment programs for borrowers who need help. If you’re experiencing a hardship, like unemployment or a medical emergency, ask the lender if you qualify for a modification to change your loan terms and reduce your monthly payments.
Car refinance loan
An auto refinance — taking out a new loan to pay off your current loan — might get you into a more affordable payment arrangement, especially if your credit has improved since you took out your loan or if interest rates have fallen significantly since then.
Learn more about our picks for the best auto refinance loans.
Personal loan
Personal loans have higher interest rates than auto loans and auto refinancing, since they aren’t backed by collateral property. But if you don’t meet the requirements to refinance your car, a personal loan could give you the funds you need to pay off the loan. Just make sure the payments on the personal loan are affordable.
Learn more about our picks for the best personal loans.
Credit card
Credit cards are rarely a good solution for financial problems. However, if you have a card with 0% introductory interest on purchases, and there’s only a small balance remaining on your car loan, the credit card might be part of the solution.
In this case, you’ll want to be sure that…
- The card issuer does not process loan payments as (costly) cash advances
- The fees for paying your loan with a credit card do not outweigh the benefits
- You are certain you can pay off the balance before the 0% APR offer expires
Learn more about our picks for the best credit cards.
You can request a car payoff quote from your lender by following the request instructions online or over the phone or by asking for the payoff quote in person.
If you pay your car loan as originally agreed, you can estimate your payoff amount by multiplying your monthly payment by the number of payments you have left.
That said, there’s a chance your payoff calculation will be wrong if you aren’t accounting for certain fees or early payoff, so the best way to find the right number is to reach out to the lender.
If you plan to pay off your auto loan in the near future, you should get a payoff quote to ensure you pay the correct amount. You may also want to request the payoff quote for a car if you’re considering options for reducing your auto loan debt, such as an auto refinance, so that you can see if the new financing will save you money overall.
