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How Can I Hand My Car Back Without Affecting My Credit?

Written by Steve Rhode


Dear Steve,

I was in the process of rebuilding my credit so my interest rate on my car loan is high. Recently I had some financial changes, and the monthly payment on my car loan is too high for me to handle. I tried to do a settlement offer but they want more than I can give.

How does turning the car back in affect your credit? Also, will I still be responsible for clearing the balance on the car loan? If so, what is the best way to handle this situation without having to pay the entire balance or affecting my credit?



Dear Stephanie,

Outside of either making your agreed upon payments or paying the loan off, any adjustment to the payments that the creditor does not mutually agree to is going to impact your credit.

It’s not clear if this is your only debt or not.

When you hand the car back they will sell the car at auction for much less than retail. You will be responsible for repaying the difference between that low sales price and what you owe. If you don’t pay that new big bill, you can be sued for the balance owed.

I know you want to “handle this situation without having to pay the entire balance or affecting my credit” so the only option is going to be a payment plan adjustment by the creditor that you both mutually agree to.

Keep in mind, you have other options for dealing with the situation but they will be reported on your credit when you are either late or don’t make the contractual payment as agreed.

The bottom line is you can no longer afford the car and the financial changes you’ve had have lowered your income. One way to adjust expenses to fit within your income is to consider a consumer bankruptcy. In the bankruptcy you could hand the car back and discharge the balance due. Then you could get back to rebuilding your credit again.

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About the author

Steve Rhode

Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.

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