Can You Return a Financed Car Without Penalty?

The short answer is no, you can’t return a financed car without penalty.

Does the dealer allow returns?

First, you need to find out if the dealer you purchased the vehicle from accepts returns or not, as well as what their return policy includes. If they do accept returns, you must follow the outlined terms and policy restrictions. If the dealer does not have a return policy, it is up to their discretion whether to take the car back or not. 

Terms and policy restrictions

When evaluating the terms on your financing contract, there are typically restrictions regarding returning the car. These typically include time limits and mile restrictions in which the return can be made. 

Depreciation

In general, purchasing a car is not considered an investment that appreciates in value or builds equity over time. Instead, cars depreciate in value as they age and accumulate mileage. This means that the value of a car typically decreases over time. Further, the depreciation is most dramatic in the first three years of owning the vehicle. 

This is why a dealer is less likely to accept a return, as it will be more difficult to resell the vehicle.

The penalties for returning a financed car before the end of the financing term can vary depending on several factors, including the terms of your financing agreement and the policies of the lender or dealership involved. Here are some common penalties you might encounter. 

Early termination fee

Many financing agreements include an early termination fee or penalty for ending the contract before the agreed-upon term. This fee is typically designed to compensate the lender for potential lost interest or administrative costs associated with the early termination.

Decreased credit score

Returning a financed car before the end of the loan term can have a negative impact on your credit score. It can be seen as a default or breach of the loan agreement, and it may lower your creditworthiness in the eyes of future lenders. This could stay on your credit history for up to seven years. 

Negative equity 

If you owe more on the car loan than the current value of the vehicle, it is referred to as negative equity or being "upside down" on the loan. In this case, returning the car may not relieve you of the remaining balance. You may still be responsible for paying the difference between the loan amount and the car's value.

Usage or wear-and-tear fees

Lenders or dealerships may charge additional fees if the car shows excessive wear and tear or has exceeded certain mileage limits specified in the financing agreement. These fees are intended to cover any depreciation or damages beyond normal use.