How to Get Out of a Bad Car Loan

By Angela Monroe - May 24, 2019

Trapped in a bad car loan?

You had a good start when you bought the vehicle three years ago. You went to a local dealership, applied for a $25,000 car loan that’s payable in five years and got approved without paying any upfront cost. Shortly after driving your car off the lot, you started making monthly payments. You believed you got a great deal, so how did it go wrong?

Upside Down

What you missed putting into consideration was that a car’s value depreciates fast, especially in the first three years of owning it. The moment you drove it off home from the shop, it had already depreciated by around 10%. After one year, its value decreased further by 25%. In three years time, it would depreciate around 40% and by the fifth year, its depreciation would be around 60%.

This means that when you bought the car home through a loan without a down payment, you immediately owed the entire purchase price. However, it’s already less in value.

Owing more money on a car than its actual value is called “upside down”.

Getting upside down on a car loan was really not that troublesome until you got hit by unemployment one or two years after you had the loan. Jobless and without savings, you could no longer afford the monthly repayments. That’s when the real problem started.

What Now?

Although it won’t be easy, you can get out of a bad car loan by paying down the excess debt. You may need to make some sacrifices to raise the cash or apply for a car loan refinancing to do this.

1. Refinance the car loan.

If your lender allows you to refinance a car loan (usually depending on your loan-to-value ratio), it can lower your rate and help you pay more toward the principal balance.

However, do this only when you have a good credit score or if your score has improved since you purchased the vehicle. The higher your score, the more you can qualify for a car loan with competitive interest rates.

2. Transfer the excess debt to your credit line.

If you have a credit line, move your excess debt to it. This will save you cash and buy you some time to make repayments. Take note, however, that this setup only works if you can commit to the lower regular payments on a credit line.

If you don’t have a credit line, get one with a low introductory APR. Pay as much as you can before the introductory period ends.

3. Get a side hustle.

Raise enough cash to cover the car payment by selling stuff you no longer need. You can also sell art and crafts if you have an artistic flair. There are plenty of online classified sites that can make this easy for you.

If selling items is not enough, get a second job, like providing tutorials or doing freelance marketing. Don’t worry. This is just a temporary fix until the car loan shortage is corrected.

4. Negotiate with your lender.

Talk to your lender, explain your situation and ask if it’s possible to reduce your monthly payments for a brief period, extend the due date or skip a few payments while you’re trying to get your life back on track. Asking for considerations won’t do you any harm.

5. Trade your car for a more affordable option.

You can trade-down to a more affordable car, but make sure that it will maximize your profit and help you save more.  See to it that the dealer does not roll the negative equity into your new loan or you would end up losing money.

6. Get a personal loan.

A personal loan is not purpose-specific. Use the funds from this financing to pay the outstanding balance of your car loan. Don’t forget to shop around for lower interest rates before getting one.

7. Return the car to your lender.

Before getting your car repossessed, turn the car over to your lender and ask them to waive the outstanding balance in exchange for the car. This will also help you save in towing and storage fees.

If it’s possible, ask the lender to also not report your transaction information to the credit bureaus. This will help you get out of the bad car loan without damaging your credit score.

8. Sell your car

If you’ve tried all the ways above but to no avail, it might be best to sell your car to a dealership, broker or a private party. Use the money to pay the loan.

Letting go of your prized possession may not be easy, but sometimes it’s for the best.


Loans For People with Bad Credit specialises in finding sustainable car loan options for people with bad credit ratings. Complete our Quick Pre-Approval Application or Call 1300 769 384 to get your finance sorted today.

Angela Monroe
Angela Monroe is the Community Manager at The Positive Group, specialising in giving people the information that they need when they need it, and putting you on the path to a fair financial future. She has 8 years of experience in helping Australians find the right finance solutions, and regularly contributes articles to empower Australians with the knowledge they need to become financially healthy.


No comments yet.

Sorry, the comment form is closed at this time.

  • Quick Quote

  • Related Posts