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Can You Cancel a Car Loan Contract? How?

It is very difficult to cancel a car loan contract. For in-home purchases of greater than $50, there is a “Cooling-Off Period” that extends to the third business day after the sale.  However, this period does not apply to automobiles. It is at the discretion of the dealer and lender to let you return a vehicle you’ve purchased, and if you’ve financed the purchase with an auto loan, things become even more tricky.

After the first 2-3 days, all bets are pretty much off. Even in cases of lender misconduct, you will become involved in quite a long legal process. Most of the advice available on the internet simply brushes over the legal aspects of canceling a legally binding contract and go straight to ways of paying off the loan. Canceling and paying off are two separate issues.

Getting Out of a Car Loan

This is what you will find tips for doing on most websites. Here are a few ways that can use to get out of a car loan:

  • Contact the dealer: if you have only had the car for a few days, the dealer may take it back for the price you paid. This is an ideal situation because you will than only have to pay a few fees to the lender. The catch is that any trade you offered may not be on the lot any more and there is nothing you can do to recover it.
  • Sell the Car: if the dealer refuses to take the car back, you can sell it, hoping to get enough to either cover the loan or leave a small enough balance that you can finance it onto another vehicle.
  • Voluntary Repossession: you could call the lender and tell them you have no intention of paying the loan, then ask them to repossess it. Basically, you are giving the car back to the bank. Sure, you will be rid of the vehicle, but you are going to have a repossession on your credit report. Good luck getting another car loan for at least a year.

Canceling a Car Loan

You can only cancel a car loan in a few, very limited situations. Each of them could involve a long legal process. Here are a few of the situations where you may have legal recourse to cancel a car loan:

  • Built into the contract: search your loan agreement. On rare occasions a lender may have built in a few conditions that allow you to cancel the loan and/or delay payments due to financial hardship.
  • Lender Misconduct: if you suspect that you have been the victim of lender misconduct, misrepresentation, or fraud during the purchase process, then you can contact your state’s attorney general. The office will direct you to the next step in the process, but you should retain an attorney to fully protect your rights.