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Buying a car is one of the biggest purchases you may make, and with average prices in the tens of thousands, it’s a financial move that often requires financing or a loan.

Given high auto prices, it’s no surprise that people are borrowing more money than ever for their wheels — Americans have a combined $1.66 trillion in auto debt as of the second quarter of 2025. Indeed, borrowing money to cover the cost of a car is very common.

Whether learning the generalities of what is an auto loan or the specifics of how bank car loans work, there is information that can help, as well as a few options to be aware of when it comes to financing a vehicle.

What Is a Car Loan?

Similar to other types of loans, getting a car loan means borrowing money from a lender, but specifically to cover the cost of buying a car.

There are various options and lenders available when looking for an auto loan, such as financing from dealerships, banks, credit unions, and nonbank financial institutions.

How Auto Loans Work

Car loans function similarly to other types of loans in that the borrower agrees to repay the amount borrowed over time, as outlined in the loan agreement. The amount of money that needs to be repaid includes the principal, interest, and any applicable fees.

One big difference between car loans and other types of loans is that borrowing money for a car almost always involves car loan collateral. While other loans may be either secured or unsecured, car loans typically are secured by the auto itself. In the event that the borrower can’t repay the loan, this leaves the lender with the ability to recoup that money via car repossession.

Auto loans may feature simple interest charges that do not compound. Even so, with the average car loan length coming in just shy of six years, it’s worth noting that the longer the amortization period, the greater the interest charges will be, even if monthly payments are lower with longer loan terms.

Loans with shorter terms under 60 months may feature lower interest on a car loan than loans with longer terms, further increasing potential car loan savings. This is because the longer the auto loan term, the riskier the lender deems it to be.

Recommended: Guide to Car Loan Interest Rates

Key Auto Loan Terms to Know

Here are some common auto loan terms:

•   Annual Percentage Rate: The annual percentage rate, also known as APR, is the interest rate and fees a lender may charge when offering financing. Lenders must disclose the APR in nearly all consumer credit transactions under the Truth in Lending Act, so consumers generally have the ability to compare APRs on car loans.

•   Buyer: The buyer is the primary consumer who purchases the vehicle from a seller. The buyer may sign a buyer’s order when buying a new or used car.

•   Down Payment: A down payment is the amount of money a buyer may pay upfront to reduce total financing costs. One way consumers may avoid upside down auto loans is by making a sizable down payment when buying new or used vehicles.

•   Loan Term: The loan term is the total length of time that a borrower has to repay the debt in full. Auto loan terms are usually measured in months, such as 48 months, 60 months, 84 months, and even 144-month car financing.

•   Seller: The seller is the private person or car dealership selling you the vehicle. A private party auto loan can provide you with financing to buy a used vehicle from a private person selling a car.

•   Vehicle Identification Number: The vehicle identification number, also known as the VIN, is a unique serial number for a car. You may find the VIN on the driver’s side dashboard of a car.

What Types of Lenders Offer Car Loans?

Before a car buyer drives home with their new car, they’ll first have to obtain a loan if they plan to finance the purchase. This is commonly done through the car dealer, a bank, or a private lender. There are pros and cons to each option:

Banks

Qualifying for a bank car loan usually starts with a credit check. As with other types of loans, an individual with a high credit score is more likely to be approved and may pay lower interest because they are considered to be at a lower risk of defaulting than an individual with a low credit score.

Even if someone is concerned they don’t have the credit score needed to buy a car, it’s still worth applying, as a bank may allow a cosigner or offer a loan at a higher APR to account for the added risk. Many people can still get an auto loan with a 650 credit score. However, if someone is concerned about their score, they may want to prequalify for a loan to get an idea of their chances.

A bank will also likely want to see employment and income details, as well as a government-issued ID and proof of address. Some banks will also require information about the car the borrower wants to purchase.

Dealerships

A car dealer has a vested interest in the car purchase. After all, if the prospective buyer needs financing but is unable to get a car loan, the dealer won’t make the sale and won’t get paid. Documents required to qualify for dealer financing are generally the same as those required for bank financing: proof of employment, income, and residence. Vehicle information will, of course, already be known.

There are situations where this may work in the car buyer’s favor. For example, if the dealer has been falling short of sales quotas, they may be inclined to reduce interest rates or offer low or 0% interest financing to incentivize buyers.

Given that the average APR for a 60-month new car loan at commercial banks was 7.67% in the second quarter of 2025, the savings associated with such a promotion can be substantial. For a 60-month car loan to pay for an average-priced new car — $48,699 — the total paid over the term of the loan would be $58,786, including $10,087 in interest based on the average APR (not including any additional fees or taxes or accounting for a down payment).

Dealers may also offer greater financing flexibility, which can be a double-edged sword. They may be more likely to extend a loan to someone whose credit score would disqualify them at the bank and might encourage a longer loan term to make monthly payments more affordable. Keep in mind that this may increase the risk of default for some individuals.

Private Lenders

Some car buyers might not want to use bank or dealer financing, but still need some sort of loan to buy a car. Financing through a private lender can be another option to consider.

A private lender might be a friend or family member. If that’s not an option, peer-to-peer lending might be something to look into. P2P lending matches two individuals — one that has money to lend and one that needs a loan.

People who might not have the creditworthiness to qualify for a loan from a bank or dealership might be able to qualify for a P2P loan, as they sometimes have more flexible qualification requirements. Shorter credit histories or credit scores that are just “fair” might qualify for a P2P loan, whereas those might be cause for denial of a traditional auto loan.

Recommended: Grace Period for Car Payments

GAP Insurance Need to Knows

Guaranteed asset protection, also known as GAP insurance, is an optional coverage that car drivers may purchase. If you’ve taken out an auto loan, GAP insurance may benefit you in the event that your vehicle gets totaled or stolen.

Standard auto insurance, including comprehensive coverage, may only insure the actual cash value of a damaged or stolen vehicle. This means the outstanding balance of your car loan may not be covered by your standard car insurance policy.

GAP insurance, meanwhile, can help ensure that you won’t have to continue paying a monthly car payment on a destroyed or stolen vehicle. GAP insurance can fill the gap in situations where comprehensive coverage may fall short.

Personal Loans vs Auto Loans

Borrowers may use personal loans for almost any household purpose, while auto loans are restricted to financing the purchase of a motor vehicle. The below table compares personal loans vs. auto loans:

Different Types of Auto Loans

Below we highlight several different auto loans:

Secured vs Unsecured Auto Loans

The difference between secured vs. unsecured auto loans is that the vehicle serves as collateral on the secured loan, whereas borrowers pledge no assets as collateral on an unsecured car loan.

Lenders may seize the vehicle if a borrower defaults on the secured auto loan, which means secured auto loans present more risk to the borrower.

Unsecured auto loans present more risk to the lender. The interest rate you get on an unsecured auto loan, therefore, may be higher than the interest rate you might get with secured auto loans.

You may need good credit to qualify for an unsecured auto loan, and lenders may sue you for breach of contract if you fail to make required payments on the loan.

Simple vs Precomputed Interest Car Loans

A simple interest auto loan is a car loan that charges simple interest on the outstanding balance of your loan each month, while a precomputed interest car loan is a loan that calculates the finance charges up front and adds that to your principal loan balance from the outset.

Simple interest loans may include a fixed APR, and monthly payments on the loan go toward interest charges and repaying the principal loan amount. Paying simple interest on the outstanding balance of your loan means the amount of interest you owe will decrease as you pay down the principal.

With precomputed interest loans, the combined sum of your interest charges, principal loan amount, and any other finance charges represents your starting account balance. The lender would divide your starting account balance by the length of your term to calculate your monthly payment on the loan.

You may be entitled to a refund if you pay off the precomputed interest car loan early. Prepaying a precomputed interest auto loan, however, is generally not as beneficial as prepaying a simple interest auto loan. That’s because any refund you get from prepaying a precomputed interest loan is generally lower than what you might have saved if the loan had a simple interest cost structure.

Preapproved Auto Loans

Preapproved auto loans are a possible financing package you may get before visiting a dealership to buy a car. Banks, credit unions, and private lenders may offer these loans to creditworthy consumers.

Getting a lender’s preapproval means the lender tells you how much financing it is willing to offer you and the proposed terms and conditions. A preapproved auto loan is conditional and not necessarily a guarantee of financing, but some lenders may give you a check equal to your preapproved amount.

Going to a dealership with a preapproved auto loan means you don’t have to rely on the dealer for financing. A lender, however, may cancel your preapproved loan offer if you fail to meet its underwriting and qualification standards on the date of sale.

Recommended: Preapproval vs Prequalify: What’s the Difference?

Other Special Loan Types

Other special loan types can include subprime auto loans for borrowers with bad credit scores below 600. Deep subprime borrowers had an average auto loan rate of 15.81% on new vehicle financing and 21.58% on used vehicle financing in Q1 2025. The average rate is generally much lower for borrowers with good credit scores above 660.

Here’s additional loan types for car financing or refinancing:

•  No income verification car loans

•  Military refinance auto loan

•  0% APR financing from captive finance companies affiliated with auto manufacturers

What Happens if an Auto Loan Is Not Paid Back?

Defaulting on any type of loan can negatively affect your credit score. Defaulting on a secured auto loan (or any secured loan, for that matter) means the lender can also initiate car repossession because the car was used as collateral.

Talking to your lender when you realize you’re going to have trouble making your auto loan payments is a good first step to take. Some lenders might have debt relief options, such as skipping a few payments or refinancing the loan, for example.

Some lenders might allow someone else to take over the payments on your loan. Having someone assume your loan typically requires similar documentation from that person as the original borrower provided when initially applying for the loan. The lender will want to make sure the new borrower will be able to make the payments.

Car Loan Requirements

Borrowers are generally expected to provide proof of identity and proof of income when applying for auto loan financing, among other requirements for a car loan.

You may present a passport, driver’s license, or other documentation issued by a government agency as proof of identity.

Pay stubs, bank statements, and W-2 tax forms may serve as proof of income. You may need the help of a car loan cosigner to qualify for a car loan with no proof of income.

Can Someone Take Over a Car Loan if Someone Dies?

What happens to a car loan when the borrower dies? The answer is that car loans do not simply disappear when a borrower dies. A surviving spouse may be responsible for paying the debt, or a lender may move to repossess the vehicle. This shows it’s possible for a third party to take over a car loan if and when the main borrower dies.

Taking over another person’s car loan doesn’t necessarily require a borrower’s death. If you’re drowning in car loan debt, you may wonder, “Can someone take over my car loan?” Transferring an auto loan can be a complex process, but it may be an option for you.

Car Loan Alternatives

Taking out a large loan to purchase a new car is not the only way to obtain a form of transportation. There are options to consider, such as:

•  Saving up to buy the car with cash

•  Save up a larger down payment so the amount financed is less

•  Buying an affordable used car rather than a new car

•  Leasing a car instead of buying a car

•  Using home equity to finance a car

•  Get a personal loan

Finding ways to make a car more affordable, regardless of financing, might be negotiating the price of the car, negotiating the trade-in value of the car you’re replacing (if that applies), or determining if any offered add-ons (such as extended warranty or service contract) are really worth the extra cost. Know what you are able to afford and don’t be afraid to walk away from a salesperson if you can’t come to an agreement.

Recommended: Should I Buy a New or Used Car?

The Takeaway

Whether you plan to use a car for weekends away and shopping trips or it’s a must for your daily commute, it’s likely to be a costly purchase. If a vehicle purchase is necessary, finding the best car for your circumstances at a cost you can afford is an important part of your financial plan.

If you already have a car but are looking to lower your payment, consider auto loan refinancing. When you refinance your car, you pay off the existing loan with a new loan, ideally with a better rate and terms.

If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.

FAQ

Is getting a car loan in general a good idea?

It may be a good idea for you to get a car loan if you need a new or used vehicle and financing to buy one. Some consumers may qualify for 0% APR on a car loan. Getting a car loan can also help you build up your credit history, which can be important if you need to borrow additional money in the future.

Is it better to get car loans or bank loans?

If you need financing to buy a car, it might be better for you to get a car loan rather than a personal bank loan. The interest rate you get on a car loan may be lower than the interest rate you get on a personal bank loan.

Does a car loan amount include the down payment?

No, a car loan amount doesn’t include your down payment. The purpose of a down payment is to reduce the amount of money you need to borrow when financing a motor vehicle purchase. Putting money down gives you an equity stake in the vehicle before paying your first monthly payment on the loan.

Do car loans go directly into your bank account?

No, car loans typically do not go directly into your bank account. Instead, lenders usually send the funds directly to the car dealer or seller. For private party purchases, some lenders may issue a check or electronic transfer to the seller, ensuring the loan is used specifically for the vehicle purchase.

Photo credit: iStock/anyaberkut

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOALR-Q325-088

The average motorcycle costs between $5,000 and $15,000, and for a high-end bike, you could end up paying as much as $30,000 or more.

It’s common to take out a motorcycle loan to cover such a large purchase. And down the line, if monthly payments become unmanageable or you think you may be able to secure a lower interest rate, it may be possible to refinance the motorcycle loan.

Keep reading to learn how to refinance a motorcycle loan, including how long it takes and whether or not it’s worth it.

Can You Refinance a Motorcycle?

Refinancing an auto loan or home mortgage is likely a familiar concept to you. When you refinance any loan, including a motorcycle loan, you take out a new loan — preferably one with lower interest rates or more manageable terms — and use it to pay off your old loan. You then begin to make monthly payments on your new, refinanced loan.

Not all lenders who refinance auto loans necessarily refinance motorcycles, so it’s important to do your homework when pursuing this kind of financing.

Steps for Refinancing a Motorcycle

If you’re interested in refinancing a motorcycle, follow these steps:

1. Determine the Remaining Balance of Your Motorcycle Loan

Your first step is to figure out how much money you still owe on your original motorcycle loan. This amount will give you an idea of how large your refinance loan will be. The easiest way to find your balance may be by contacting your lender directly. You may also be able to find the amount on recent loan statements. Once you know how much you need to borrow, you can start comparing lenders.

2. Compare Lenders

Terms and interest rates will vary by lender, so it pays to shop around for a few different options among lenders who refinance used motorcycles. What’s more, lenders will also have different requirements for factors such as credit score. In general, the higher your credit score, the more likely you will be able to secure a loan with favorable terms and interest rates. The lower your score, the harder it may be to secure a loan.

If you have poor credit, it may still be possible to find a lender that will offer you a loan. However, the loan may come with contingencies, such as high interest rates, to help compensate for the risk they assume by offering you a loan.

3. Determine Requirements to Refinance a Motorcycle

You may need additional documents and information to further the loan process along. Gather these ahead of time to speed the process and save potential headaches. You’ll need your vehicle identification number (VIN), along with the make and model of your bike. You may also need your bike’s insurance information, recent tax returns, employer information, and in some cases you may need documentation of your motorcycle’s value.

4. Apply to Refinance a Motorcycle

With documentation in hand, you can begin to apply to refinance your vehicle loan. You may want to apply to a few different lenders to see what terms and interest rates you’re offered. Consider local options, including credit unions, as well as national lenders.

Applying for a loan will likely have a slight negative impact on your credit score. That said, applying for multiple loans doesn’t hurt your score any more than applying for just one loan as long as you do so within a 14-day period. The major credit-reporting bureaus — TransUnion®, Equifax®, and Experian® — allow this window so consumers aren’t penalized for shopping around for the best loan.

5. Negotiate Terms and Rates

It never hurts to advocate for yourself. Armed with research on what various lenders are willing to offer, you can approach a bank, credit union, or online lender and negotiate terms and interest rates on a refinanced loan. Borrowers with higher credit scores will likely be in the best position to negotiate.

6. Payoff Remaining Motorcycle Loan Balance

Once you’re approved for a refinance loan, you’ll pay off the remaining balance on your old loan and begin the process of paying off your new loan.

One thing to be aware of is the possibility of prepayment penalties. Lenders make money on loans by charging interest. When you pay off a loan early, you’re no longer making those interest payments. To make up for this lost revenue, lenders may charge fees when you pay off your loan ahead of schedule. Check the fine print on your loan agreement to see if prepayment penalties apply and, if so, whether they negate the positive effects of refinancing your loan in the first place.

Recommended: Determining the Value of a Motorcyle

Is Refinancing a Motorcycle a Long Process?

Refinancing a motorcycle isn’t typically a long process, often taking a few days to a couple of weeks. The timeline depends on lender requirements, document submission, and credit evaluation. Quick approvals are possible if all paperwork is in order and the applicant meets the lender’s refinancing criteria.

When Is Refinancing a Motorcycle Worth It?

You may consider refinancing a motorcycle loan for two reasons. First, if interest rates have dropped or you’ve built your credit score, you may be able to secure a new loan with lower interest rates. This will save you money in the long run.

In some cases, you may want to lower your monthly payments. One strategy for doing so is extending your term with a refinance. Note that when you extend your terms, your monthly payments may become more manageable, however, you will be paying interest for longer. This may make this option more expensive in the long run.

Conversely, if you can afford a higher payment, shortening your term may mean a more expensive monthly bill, but you’ll pay less in interest, ultimately resulting in savings over time.

Be sure you understand the costs and fees associated with a refinance, such as prepayment penalties and origination fees. If they outweigh potential savings, the refinancing process may not be worth it.

The Takeaway

When refinancing a motorcycle, as with an auto loan refinance, it’s important to do your due diligence and shop around for the lender that will provide the best fit for your situation. Choosing the best terms and interest rate can ultimately save you a lot of money in the future.

If a motorcycle isn’t the only thing you’re looking to refinance, check out auto loan refinancing options.

If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.

FAQ

How do you refinance a used motorcycle?

The refinancing process for a loan on a used motorcycle is the same as the process for a new bike. Shop around to several lenders for the best terms and interest rates, and follow their application process.

How long does refinancing a motorcycle take?

Refinancing a motorcycle typically takes between a few days to a couple of weeks. The exact timeframe depends on factors such as your financial situation, the lender’s processes, and how quickly you can provide the necessary documentation.

What credit score do you need to refinance a motorcycle?

Each lender will have different credit score requirements. The higher your score, the more likely you are to secure preferential terms and interest rates. You may still qualify for a loan refinance with a poor credit score, however, you may be charged a higher interest rate.

Photo credit: iStock/EyeEm Mobile GmbH

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOALR-Q325-087

Breaking a car lease early can be a challenging and potentially costly decision, but it may be necessary due to financial changes, lifestyle adjustments, or dissatisfaction with the vehicle.

Car leases are legally binding contracts, and ending them ahead of schedule often involves fees and penalties. However, understanding your lease agreement and exploring available options can help you minimize the financial burden while addressing your needs.

Keep reading to learn more on getting out of car leases early, pros and cons of ending a lease early, and whether or not it’s the right decision for you.

Is it Possible to Get Out of Car Leases Early?

Yes, it’s possible to get out of car leases early. But as mentioned above, ending the lease before its scheduled termination date can be costly.

If you want to get rid of car lease obligations and pay off your car lease early, be prepared to pay thousands of dollars in early termination charges. That’s because the appraised value of the vehicle typically depreciates more quickly at the beginning of the lease.

The way car leasing works is the leasing company sets certain terms and conditions in which you agree to pay a monthly charge for the privilege to drive the vehicle. The contract may give you the option to terminate your lease early.

Here are some car leasing basics:

•  Short-term leases can be anywhere from 12 to 24 months, while a long-term lease can be up to 60 months.

•  Leasing companies may charge fees for lease acquisition when approving your auto lease contract.

•  When negotiating a car lease, you may negotiate for lower rent charges, and you may negotiate early termination charges once your lease goes into effect.

•  You may terminate a car lease early, or you may request a lease extension.

4 Ways of Getting Out of a Car Lease Early

Ending a car lease early is typically accomplished by going one of the following routes:

•  Early termination of a car lease

•  Lease buyout

•  Lease transfers

•  Buying another car

Here’s more about each method for getting out of car lease early:

1. Early Termination of a Car Lease

Early termination is a straightforward way of getting out of car leases early and returning the vehicle.

To see what this might involve, review your lease agreement to see what termination fees are listed and what else you might be required to pay to get out of the lease. The termination fee can range from about $300 to more than $1,000, and there may also be lease disposition costs, any fees charged for excessive wear and tear, fees for going over the mileage listed in the agreement, and so forth. Plus, you also need to consider how many of the remaining monthly payments you would be responsible for making.

If you’re interested in getting out of an auto lease through this method, contact your leasing company for the actual figures and then decide if it’s worth following through.

Recommended: Car Lease Acquisition Fee

2. Lease Buyout

With a lease buyout, you purchase the leased vehicle outright. Although this is often done at the end of a lease, most leasing agreements will allow you to buy the vehicle before the lease expires.

Look at the leasing agreement for the residual value, which is the amount the leasing company estimated that the car would be worth at the end of the lease. Then verify that you can purchase the car before the term ends. You will probably have to pay the residual value plus any remaining lease payments, as well as sales tax.

Early termination fees may also apply, but a lease buyout gives you the advantages of ownership, including equity, the right to make modifications, and no mileage limits. However, you won’t have any free servicing from the dealer and your payments may be larger.

Lease Buying Out Funding Options

If you’re paying off the vehicle and the associated fees in cash, then you simply verify the amount and pay off the lease.

Need financing? Just like you would for any other type of vehicle loan, shop around. The leasing company may offer you financing but its rates and annual percentage rates (APRs) may not be the best, and there aren’t extra fees if you go with your own financial institution of choice.

The lease buyout loan will be structured like a refinancing loan where you borrow money to pay off the current amount owed and then make payments to your new lender. You can get auto refinancing options quickly and easily online.

Recommended: Understanding Auto Loan Settlements

3. Transfer Leases

In many cases, you can secure an early termination of a car lease by transferring it to someone else. This may be the least expensive option. If you want to get out of your auto lease early by transferring the lease, check with the leasing company to make sure it allows this.

If it does, consider whether the new lessee (the person who will hold the lease) will take on full liability. In other words, if they don’t make the payments, are you liable to make them? If you are, you could be stuck with making the overdue/missed payments while not having the vehicle to drive.

If you don’t already know someone who wants to take over the payments during the remaining term of the lease, there are websites that match up lessees with people who are interested in taking one over, such as Swapalease and LeaseTrader. These websites usually charge $100 to $350 for their services, and the leasing company may charge a transfer fee, often around $300.

Lessees wanting to terminate their lease early can add up these fees to decide if getting out of car leases is still an attractive option. Some people who want to get out of their lease might decide to offer a financial incentive to get someone else to take it over for them. If you do that, factor in that dollar amount, as well, when deciding if the transaction is worth it to you.

Recommended: Can You Extend a Lease on a Car?

4. Buy or Lease Another Car

To exercise this option, you’d take the vehicle to a dealership to see how much money it would pay for it. (While you don’t own the vehicle, in this scenario you’re essentially trying to arrange a sale from the leasing company to the dealership.) If the amount the dealership offers is greater than the residual value of the car (specified in your contract) plus the amount you owe on the lease, you could use that difference to put toward purchasing or leasing another vehicle.

When you owe more than the dealer would pay for the vehicle, some lenders will combine what’s still owed on the leased vehicle with the loan for the one you’re buying or leasing.

Payments will be higher with this merged loan and it’s likely that you’d be “upside down” on it, which means you’d owe more on the loan than your newly purchased vehicle would be worth, and is typically financially precarious.

Going this route involves two key decisions. The first is whether to end your current lease early, and the second is whether to buy (rather than lease) your next vehicle.

Recommended: Guide to Finance Charges on Car Loans

Pros and Cons of Ending Car Leases Early

Ending a car lease early can offer flexibility in situations where your financial or personal needs change, but it often comes with significant costs and potential penalties. Understanding the pros and cons of early lease termination can help you make an informed decision that aligns with your circumstances and goals.

Is Getting Out of a Car Lease Early Right for You?

Getting out of car leases early may be right for you if you can afford the transaction. As mentioned earlier, terminating your car lease early can cost thousands of dollars. Your personal circumstances may dictate whether getting out of a car lease early is right for you.

One of the downsides to leasing a car is that you’ll pay monthly rent charges in exchange for no ownership equity stake. A typical car lease also imposes annual mileage limits. Freeing yourself from the confines of a car lease early can therefore be liberating.

Recommended: What Is the Average Credit Score to Buy a Car?

The Takeaway

There are several ways you may be able to end a car lease early. These include paying to terminate the lease early, a lease buyout, a lease transfer, or arranging the sale of the car to purchase or lease another car. Weigh the advantages and disadvantages of each approach and then choose the one that makes the most sense for your situation.

If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.

FAQ

What’s the best way to get out a car lease?

The best way to get out of a car lease depends on your situation. Options include transferring the lease to someone else, negotiating a lease buyout, or trading in the vehicle. Lease transfers often minimize costs, while buyouts provide ownership. Always review lease terms to choose the most cost-effective option.

Can you negotiate a car lease buyout early?

Yes, you can negotiate a car lease buyout early. You may contact your leasing company and request a lease buyout before your leasing contract expires. Your leasing contract may permit early termination, and you may negotiate car lease buyout terms that are right for you. Getting out of car lease early is possible, and leasing companies may be open to negotiations.

How much is the early termination fee for a car lease?

The early termination fee for a car lease varies depending on the leasing agreement. It typically includes remaining payments, depreciation costs, and additional penalties. On average, fees can range from a few hundred to thousands of dollars. Always review your lease terms to understand the exact early termination costs.

Photo credit: iStock/Jinda Noipho

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

SOALR-Q325-086

When you’re applying for an auto loan, you’ll have to choose between direct vs. indirect financing. Both will get you to the same place — funding for your automobile purchase — but there are key differences between direct and indirect financing to keep in mind.

With a direct auto loan, you can apply prior to shopping for your car and research numerous loan options to find the most competitive terms. An indirect auto loan, on the other hand, can help you get a loan faster since you’re working with a third party, typically the dealership, to arrange the financing. Whether direct vs. indirect financing is right for you ultimately depends on your preferences and priorities.

Keep reading to learn more on indirect auto loans, direct auto loans, pros and cons of each, and how to to decide which loan option is right for you.

What Are Indirect Auto Loans?

An indirect auto loan is a type of auto loan where the funds are obtained through a third party. With an indirect auto loan, the lender and the borrower don’t have a direct relationship because there’s an intermediary involved in arranging the financing.

Indirect loans are common in the auto industry. For example, when a dealership helps a buyer to obtain financing through lenders in their network, that’s an indirect form of financing.

Recommended: What Is a Balloon Auto Loan?

What Are Direct Auto Loans?

With direct financing, as the name suggests, the borrower goes directly to a lender to get funds. This could be at a bank, credit union, or online lender.

With a direct auto loan, you’d go to a dealership to choose a vehicle and sign purchasing paperwork, and then separately get your loan from your financial institution of choice.

Recommended: Smarter Ways to Get a Car Loan

Direct vs. Indirect Auto Loan Financing

In many ways, these two types of auto loans are similar, but there are key differences.

Similarities

With both direct and indirect auto loans, you’ll pick out a vehicle and obtain a loan to buy the car. In each scenario, you may have loan program choices to make.

The dealership, for example, may offer you a few indirect loan options to consider from different partners in their lending network. There can be indirect used auto loans available, as well as those for new vehicles.

Similarly, lenders can offer more than one loan program for a borrower’s consideration. With direct financing, you also have choices between lenders to mull over as you gather information from more than one lender to decide what’s best.

In both cases, you’ll usually need to make a down payment, either in cash or through a trade-in. You’ll have a principal and interest payment that’s calculated based on the loan amount, interest rate, and loan term. For both loan types, you’d sign loan paperwork and make monthly payments until the loan is paid off, or until you sell or trade in the vehicle.

Recommended: How Much Is My Car Worth?

Differences

With an indirect loan, you’d discuss and obtain financing at the dealership through a lender in their network once you’d selected a vehicle. Meanwhile, with a direct loan, you’d go car shopping as well as car loan shopping.

In other words, with an indirect auto loan, you’d look into financing after you’ve found the car you want from that particular dealership. With a direct auto loan, you could seek financing from a lender either before or after selecting a vehicle, giving you the option to consult with a lender ahead of time to get preapproved. However, you’ll also need to be better versed in auto loan terminology and specifics to look out for.

Recommended: How to Rent Out Your Car

Direct Finance Pros and Cons

Pros of direct financing include the following:

•  You can shop around for rates and terms, choosing what’s right for you from your lender of choice.

•  In some cases, a dealer will mark up the interest rate charged; with direct financing, there’s no intermediary to potentially do that.

•  You are more in control. For example, you can decide how many lenders to consult with and can therefore manage how many times your credit is checked.

Meanwhile, the cons of direct financing include:

•  You need to shop at a dealership for the car and then also need to talk to one or more lenders to secure your loan, which is more time-consuming than handling everything in one location.

•  If multiple lenders check your credit, this could impact your credit score.

•  You’ll need to do the legwork of researching on your own, rather than relying on the dealership finance department’s network of lenders.

Indirect Finance Pros and Cons

Notable upsides to indirect financing include the following:

•  You won’t have to research and check in with multiple lenders, which will save you time.

•  The dealership will coordinate the process, making it more seamless for you.

•  The dealer’s finance department can run your credit for different lenders on the same day, helping to ensure those get counted as only one hard inquiry on your credit.

However, you’ll want to note these downsides, as well:

•  A dealer could bump up the interest rate, making it more expensive for the borrower.

•  The dealer is more in control of the process than with a direct loan.

•  You won’t have the opportunity to shop around to compare multiple loan offers.

Is Private Lender Refinancing a Direct or Indirect Loan?

At some point, you may decide to refinance your car loan, perhaps to try to get a better interest rate or to switch lenders. When you refinance with a private lender, you’re dealing directly with the lender without an intermediary, making it a direct refinance loan. Because you’re financing a vehicle with the title already in your name, you wouldn’t be working with a dealer as you would with an indirect loan.

Recommended: Pros and Cons of Car Refinancing

The Takeaway

When buying a vehicle, you’ll either need to pay cash or apply for an auto loan. A borrower may choose to work with a dealership to get financing through one of the lenders in their network, known as an indirect auto loan. Or, they may get a direct auto loan, where they work directly with a financial institution without a middle party.

If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.

FAQ

What is indirect financing for auto loans?

With an indirect auto loan, there’s an intermediary between the lender and the borrower, often the finance department at dealerships. The dealership would present the borrower with loan options, ask them to select a loan program, and then complete the loan paperwork there.

What is direct financing for auto loans?

With a direct auto loan, a borrower goes directly to a bank, credit union, or online lender to obtain funds to purchase a car. In other words, there is no third party in between the lender and buyer as there is with an indirect auto loan, where a dealer can serve as an intermediary.

What is the difference between indirect and direct financing for auto loans?

The main difference between direct vs indirect financing is whether or not the borrower works directly with the lender. With indirect financing, there’s an intermediary — often, the finance department at a dealership — that gathers financing offers for a buyer and gets the paperwork signed. With a direct auto loan, the borrower works directly with a bank, credit union, or online lender.

Photo credit: iStock/milorad kravic

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOALR-Q325-085

Your car axle is the rod that connects your wheels together. Standard vehicles have one in the front and one in the rear of the car. It’s critical that your wheels turn properly if your car is going to move, so when your axle is malfunctioning, it’s important to have it repaired or replaced.

On average, replacing an axle will cost between several hundred dollars and $1,200. Front axle replacement cost is about $550 to $740, while back axle replacement cost is typically less, costing $480 to $550 typically.

That said, there are a variety of factors that will influence the cost of repair. Here’s a closer look at axle function, a breakdown of costs, and options for paying for repair or replacement.

Front Axle Replacement Cost Breakdown

The two biggest factors that go into broken axle repair or replacement are parts and labor.

Labor costs vary depending on where you live, but you can generally expect to pay a mechanic somewhere between $75 and $130 per hour. Replacing an axle should take one to three hours, which means you can expect to pay up to about $390 in labor costs at the upper end of the price spectrum. Labor costs for repairs will depend on the complexity of the fix.

The rest of the cost largely comes down to parts. The make and model of your car will determine what types of parts you need. If you have a relatively common vehicle, it will likely be easy to find parts, which can reduce cost. Parts for high-performance or luxury vehicles may cost significantly more.

Another option is aftermarket parts, which are parts not made by the original supplier. These are often cheaper alternatives to brand new parts.

Recommended: Financing a Used Car With Over 100,000 Miles

Get an Estimate

It’s recommended to get several estimates from mechanics to ensure you’re getting a fair price. Understanding average cost is a good start, but you may want to look at online resources, such as Kelley Blue Book’s Repair Pricing tool or Consumer Report’s Car Repair Estimate. These resources allow you to look up the make and model of your car, as well as your address, to get an estimate for repairs in your area. This can give you a more accurate idea of how much you’re likely to pay given your circumstances.

With this figure serving as a benchmark, contact a few local auto shops and ask them for a quote. Compare their answer to the average price for your car to help you determine where to get the best deal.

Once you find a mechanic, be sure to look up reviews to see if previous customers are happy with their service. You may also want to look them up on the Better Business Bureau’s website to see if anyone has lodged any complaints.

Recommended: Alternator Repair and Replacement Costs

How Axles Work

Car axles connect your wheels and use rotational force from your transmission to get your wheels spinning. Most vehicles will only have two axles, which can be classified as “live” or “dead.” A live axle receives power from the engine and propels the car forward. A dead axle does not receive power, however, it still supports the weight of the vehicle.

The front axle may or may not receive power from the engine, so it can be live or dead. Axles typically have four parts: the beam, the swivel pin, the track rod, and the stub axle. They are built to be as sturdy as possible, often made from carbon steel or nickel steel.

The rear axle, on the other hand, is “live,” meaning it helps rotate the car’s wheels and move the vehicle forward. They typically come in two parts, known as half shafts. These are connected by the car’s differential.

Why Do Front Axles Fail?

An axle could fail for a variety of reasons. For example, you might be in a car accident that causes damage to the wheels or undercarriage of the car. Older vehicles might have damage from rusting that causes axle failure.

If you overload your car with too much weight, you can put pressure on the axle that causes it to fail. Also, driving in rough conditions on bumpy roads with potholes, for example, might accelerate wear and tear, causing your axle to eventually break.

Recommended: Suspension Repair and Replacement Costs

Signs It’s Time to Replace Your Front Axle

Watch out for the following signs that could signal your axle needs to be replaced:

•  Vibrations and loud sounds: Look out for vibrations, clanking, and rumbling sounds coming from the underside of your vehicle.

•  Wobbly tires: A broken axle may not hold your wheels on straight, which can cause wobbling.

•  Your car won’t move: If your car won’t move even while your engine is revving, it may be a sign that your axle is broken and isn’t able to receive power.

Preventing Future Axle Problems

You can help prevent axle problems by ensuring that your axles are properly lubricated. Also, check your owner’s manual to see how much weight your vehicle is designed to bear and avoid exceeding that limit. Be extremely careful when driving on rough roads, and avoid bumps and potholes when possible.

Covering the Cost of Axle Repair & Replacement

You can pay for the cost of axle repair or replacement with cash or with financing, including credit cards, personal loans, or refinancing your current car loan.

Cash

Paying with cash is the cheapest option as there are no associated fees or interest payments to be paid. Experts recommend that you keep an emergency fund with three to six month’s worth of expenses to cover unexpected costs, such as a broken axle.

Credit Card

If you don’t have the cash on hand, you may consider using a credit card. However, credit cards are best used when you know you’ll be able to pay your bill in full at the end of every month. If you don’t, you’ll owe interest, which can be up to 20% or more. If you carry a balance from month to month, your interest will compound. In other words, you’ll start to accrue interest on your interest, which can push you further into debt.

Personal Loan

As an alternative to credit cards, you could consider a personal loan for car repairs. Personal loans allow individuals to borrow a lump sum of cash that can be used for almost any reason, including car repair. In return, borrowers agree to repay the loan on a set schedule of regular payments with interest. Interest rates are around 11.5% for personal loans, according to the St. Louis Federal Reserve.

Auto Loan Refinance

Finally, you could also consider refinancing your auto loan to help free up some cash in your budget. When you refinance your auto loan, you pay off your old loan with a new one, ideally one with a lower refinancing interest rate, which saves you money in the long run. You can use your interest rate savings toward other goals, including paying for car repair. You can explore potential savings with a car loan refinancing calculator. Or, if you have equity in your car, a cashout refinance could help free up some funds.

The Takeaway

Replacing a car axle costs an average of $900 to $1,200 including parts and labor. Factors that impact the total price include where you live, what your mechanic charges in labor, and the type of axle your specific car needs. You can finance this car repair with cash, credit cards, a personal loan, or an auto loan refinance.

If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.

FAQ

Can I drive with a damaged car axle?

Do not drive your car with a damaged axle. If your wheels aren’t in proper alignment, it could make driving very dangerous.

How long does it take to repair or replace a car axle?

In general, it takes between one and three hours to replace a car axle when parts are available. Repairs may take less time.

Are car axles covered under any car warranties?

Powertrain warranties cover the parts of the car responsible for delivering power to the wheels, including the engine, transmission, and axles. If you have a powertrain warranty, your car axles will likely be covered.

Does car insurance cover the cost of axle repair or replacement?

Insurance will only cover the cost of axle repair or replacement if your axle has been damaged in an accident. Insurance does not cover general wear and tear.

Photo credit: iStock/Pornpimone Audkamkong

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOALR-Q325-084