I can't afford my car. Can I give it back, or sell it?
If you can't afford your car and the monthly payments, you should do everything possible to avoid defaulting on your loan and initiating a repossession.
Avoid repossession if at all possible
A repossession means having your car taken from you. Even if you voluntarily return your car and stop making payments, it is still a repossession. The lender then sells the car at wholesale car auction, which means a low sale price. He then sues you for the balance of your loan, after the auction sale price is deducted, which can easily be thousands of dollars. It must be paid in cash – no more monthly payments. Finally, the lender reports the repo to the credit bureaus and your credit is seriously damaged for seven years.
What to do
To avoid a repossession, try to work with your lender to find a solution. It might be a revised payment plan, or other solution that can help you get back on schedule with your loan. Even if you miss a few payments without the lenders permission, your credit is damaged and will cause you problems in the future with other loans and home mortgages.
If your situation is more severe, you could consider some other possible solutions as described here:
Trade down to a less expensive vehicle - this will only work if you are not "upside down" with your current loan. Get your loan payoff amount from your bank or lender and compare that amount to the actual trade value of your car from NADA Guides (www.nadaguides.com) or Edmunds.com (www.edmunds.com). If you still owe more than your car is worth, you are upside down and this strategy might not work for you.
Refinance your loan - Again, this only works if you are not upside down. If your credit has improved since you bought your car, or you are willing to extend your loan for more years, this strategy might work for you.
Sell your car - Once again, this only works if you are not upside down, or if you have the cash to fully pay off your loan after you sell the car.
Short-sell - This is a strategy that sometimes works with some lenders, depending on your situation. With this method, you convince your lender that you can no longer afford your car, can no longer make payments, and that you are headed for a certain repossession — and ask the lender to let you sell the car and accept the sale amount as full loan payoff. The lender will receive more money than if they took your car and sold it at auction. This method may have credit and tax implications, so make sure you understand them before deciding on this method.
Summary
There are no easy or simple solutions when you encounter financial problems and can no longer afford your car. However, there are steps you can take to avoid repossession and save your credit, and possibly save your car.