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Auto loan scams can deprive consumers of their hard-earned money. Some of the most common auto loan scams include car title loan scams, change in auto loan term scams, yo-yo financing scams, credit score scams, car loan fee scams, cosigner scams, and guaranteed loan scams.

Auto loan scams can occur online and at car dealerships. Below, learn about some of the most common auto loan scams plus tips on how you can avoid such scams.

What Is an Auto Loan Scam?

An auto loan scam is an unfair, deceptive, or criminal practice that defrauds or takes advantage of car buyers who need financing. Auto loan scams can also target car owners who apply for car title loans. As mentioned above, auto loan scams can occur online and at car dealerships.

Auto loan scams can have a damaging impact on consumers. These scams may result in car owners paying exorbitant rates of interest or being required to return their vehicle while being denied a refund of their down payment.

How Do Car Loan Scams Work?

Car loan scams work by taking advantage of consumers who want to borrow money. Any car owner who applies for car title loans could become a prime target of such a scam, and consumers who need financing to purchase a new or used vehicle could also become a target.

These scams could exploit consumers who may not be aware of their credit scores or aware of any state laws against predatory lending. Scammers may also target consumers who sign auto loan contracts without reading the documents or understanding the terms and conditions.

Auto loan scams can give car dealers unfair leverage over their customers and may cause customers to pay exorbitant rates of interest.

Recommended: Is an Auto Loan Secured or Unsecured?

Car Title Loan Scam

Car title loan scams may exploit motor vehicle owners who borrow money from car title loan lenders. Borrowers in this scam may sign car title loan agreements that include exorbitant rates of interest.

Perpetrators of this scam may impose interest rates exceeding 100% and may seize the vehicle as collateral if the borrower fails to repay the loan in full. At least 32 states plus the District of Columbia cap interest rates at 36% or less for $2,000 installment loan products.

Change in Auto Loan Term Scam

A change in auto loan term scam is an unfair practice in which lenders change the terms and conditions of a loan agreement after a borrower secures financing for a vehicle. Lenders may promise certain terms and conditions when selling the vehicle then later inform borrowers that they no longer qualify for the favorable loan terms.

Lenders who deploy this scam may offer new loan terms calling for borrowers to pay higher rates of interest as a condition of keeping the vehicle. Borrowers who refuse to pay the higher interest rate would be asked to return the vehicle.

Yo-Yo Financing Scam

Yo-yo financing scams occur when consumers buy a vehicle from a dealership that fails to honor the financing agreement. Dealers in this scam may contact borrowers days later and tell them that their auto loan financing application did not go through.

Car buyers in this scam are asked to return the vehicle, and these customers may also be denied a refund of their down payment. After the car buyer returns the vehicle, the lender may ask the customer to consider buying a different vehicle at a higher rate of interest.

Credit Score Scam

A credit score scam occurs when lenders of auto financing give false or misleading information about a consumer’s creditworthiness. Lenders in this scam may tell borrowers that their credit scores are too low to qualify for the best interest rate even if the borrower has good or excellent credit.

Victims of this scam may be unaware of their good or excellent credit scores and therefore might not realize the lender is pulling a scam. Certain credit monitoring services can give consumers access to their credit reports and credit scores.

The way how auto loans work is that banks, dealerships, or private lenders offer a financing plan to help consumers buy a new or used vehicle. Lenders may offer the best rates of interest to consumers with excellent credit, but scammers may ignore creditworthiness when imposing unfair rates of interest.

Car Loan Fees Scam

Here are some car loan fee scams:

Packing Payments

A packing payments scam occurs when dealers inflate the overall price of an auto loan by adding extra products, including supplemental insurance packages, that can provide dealers with additional revenue kickbacks.

Upfront Fees

An upfront fee scam occurs when lenders ask consumers to pay advance fees before processing an auto loan application. Scams like this can occur online, and victims may never receive the loan and may never hear from the lender after paying the advance fees.

Cosigner Scam

A cosigner scam occurs when borrowers apply for an auto loan with cosigner assistance, but the lender ends up putting the entire loan in the cosigner’s name.

A car loan cosigner can help borrowers with poor credit qualify for an auto loan. If approved by the lender, the borrower and cosigner would share the responsibility of repaying the loan.

Guaranteed Loan Scam

The guaranteed loan scam occurs when dealers promise that borrowers will receive auto loan financing regardless of credit history and then offer outrageous terms and conditions for the loan.

A guaranteed auto loan offers financing to all car buyers, including consumers with poor credit. Lenders may charge higher rates of interest on borrowers with poor credit.

Recommended: How to Shop for Auto Loans

Tips for Avoiding Auto Loan Scams

Here are some tips to avoid auto loan scams:

Get Independent Financing

Consumers can avoid dealer financing by shopping around for car loans from independent lenders who may offer preapproved car loans or car loan refinancing.

Know Your Credit Score

Knowing your credit score can help you avoid credit score scams. As mentioned earlier, certain credit monitoring services can give you access to your credit report and credit scores.

Blank Fields on Contract

Blank fields on a contract could signal trouble. Lenders may ask you to sign the paperwork without giving you time to read the contract, and then lenders could later insert language into the blank fields imposing unfair terms and conditions.

Unclear Interest Rate

Consumers can avoid signing auto loan contracts that fail to disclose the interest rate in clear language. A loan contract with an unclear interest rate could be a red flag.

Conditional Loan

Getting a preapproved or conditional auto loan before visiting a car dealership can help you avoid potential yo-yo financing scams. Once you find the car you want, financial institutions may finance the transaction with a fully approved loan agreement.

How Do You Know If You Have Been Scammed?

The following scenarios could point to an auto loan scam:

•  The lender changes the terms of your loan without your consent

•  You’ve paid upfront fees for financing and never received a loan

•  The lender is charging you an exorbitant rate of interest

•  The lender rushes you to sign a loan contract with blank fields

•  You buy a vehicle and the dealer later asks you to return the vehicle or pay higher interest.

Recommended: Car Usage and Ownership Statistics in the U.S.

What Can You Do If You Are a Victim of an Auto Loan Scam?

Victims of auto loan scams can file complaints with their state’s consumer protection agency and the Federal Trade Commission. Consumers with unfair auto loan terms may also file complaints with the Consumer Financial Protection Bureau.

What Should You Do If You Can’t Afford Car Loan Payments?

If you cannot afford making car loan payments, you may contact your lender as soon as possible and ask about possible relief options.

Lenders may be willing to negotiate a loan modification that could extend your repayment term and provide you with a lower and more affordable monthly payment. Refinancing may be an option as well. It’s likely you’d take out a new loan with lower monthly payments, but you’d probably pay more interest over the life of your loan.

If your circumstances change and you can afford to pay off your car loan early, that can improve your debt-to-income ratio and allow you to save on interest payments.

The Takeaway

Lenders who charge exorbitant rates of interest for auto loans could be predatory scammers. Other signs of a scam can include the rate of the loan changing unexpectedly or the lender having you sign a contract with areas that have not been fully filled out. Knowing the signals of a scam and being wary are good steps to take.

Auto loan consumers who cannot afford their monthly repayment obligations may consider auto loan refinance 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 to avoid auto loan scams?

Consumers can avoid auto loan scams by knowing their credit scores and seeking preapproved financing from independent lenders before going to a dealership.

How to know if you’ve been scammed?

You may be the victim of an auto loan scam if the lender took advantage of you with an unfair or deceptive practice. One of the signs of a scam is the lender changes the terms of your loan without your consent. Paying upfront fees and getting nothing in return is also a red flag.

What can you do if you are the victim of an auto loan scam?

As mentioned above, victims of an auto loan scam may file complaints with their state’s consumer protection agency and the Federal Trade Commission. Consumers with unfair auto loan terms may also file complaints with the Consumer Financial Protection Bureau.

Photo credit: iStock/erdikocak

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.

SOALR-Q325-062

If you encounter financial difficulties and you’re unable to repay your auto loan, there are ways to get relief from your debt. For instance, you could pursue an auto loan settlement.

But before you go this route, there are some downsides to an auto finance settlement. For instance, a car loan settlement might have a negative impact on your credit score. Weighing the advantages and disadvantages of auto loan settlement is crucial.

What Is an Auto Loan Settlement?

An auto loan settlement is an agreement between you and your creditor that allows you to pay off your car loan for less than the remaining amount you owe. Can you settle on a car loan? Yes. A settlement may become an option when you can’t make regular loan payments.

Recommended: What Is a Private Party Auto Loan?

How Do Auto Loan Settlements Work?

When it becomes clear that you will be unable to pay off your auto loan in full, your lender or a collections agency may come to you with an offer to settle. If you accept the offer and pay off the agreed-upon settlement amount, your debt is settled and you no longer owe any money on the loan.

Creditors and collections agencies may prefer car loan settlement to other options that might be much more time consuming and costly, such as car repossession.

Recommended: Guide to Gap Waiver

Can You Negotiate a Car Loan Settlement?

If you’re looking to get out of your car loan, you may be able to negotiate your car loan settlement amount. For instance, you could draw up a letter that states how much you’re able to pay and outline a payment plan that works for you and take it to the lender or collections agency. They may accept your plan or give you a counteroffer.

Be sure all the settlement negotiations are in writing so you have documentation of them. When a settlement is reached, get the terms of the agreement in writing as well before you send any money to collections or your lender.

Auto Loan Settlement vs Repossession

An auto finance settlement is different from a repossession. When you default on your auto loan, your lender may seize or repossess your vehicle and then sell it to recoup their losses. Or you may even choose voluntary repossession of the car so the lender can sell it.

If there’s a difference between the amount received from the sale of the car and the amount of money left on the loan, that’s what’s known as a deficiency balance. You’re responsible for paying it off. If you’re unable to pay the deficiency balance, you may be able to reach a settlement on the remaining debt with the lender.

Recommended: Can You Refinance Your Auto Loan After Repossession?

Things to Consider Before Settling Your Car Loan

Before you choose to settle your auto loan, there are some important factors to think carefully about. These include:

Impact on Your Credit Score

An auto finance settlement will have a negative impact on your credit score. A settled account stays on your credit report for seven years, and creditors will see that you were unable to pay off your loan. A low credit score can make it more difficult and expensive to secure credit in the future.

You May Avoid Default

Despite the impact on your credit score, settling your loan may sometimes be your best option. Creditors look more favorably on settling a debt than defaulting on a loan. In certain cases, settling your loan might put you on a faster track to rebuilding your credit over time.

You Could Owe Taxes

When a lender agrees to a debt settlement that’s less than the full amount of your loan, you might end up owing money in taxes. The IRS treats this kind of forgiven debt as income. As such, it’s taxed at your normal income tax rate.

If your lender forgives more than $600 in loan principal, they are required to send you an IRS Form 1099-C. Even if you don’t receive a 1099-C from the lender, you’re still obligated to report any forgiven debt amount as income when you file your taxes.

Alternatives to Auto Loan Settlement

Because of the negative impact on your credit score and financial future, an auto finance settlement is generally an option you’ll want to pursue as a last resort. Consider these four alternatives first.

Pay Off the Loan

If possible, the best option is to pay off your loan in full. In doing so, you’ll build your credit, making it easier to secure loans in the future. Perhaps you could borrow money from a family member, for instance, to make the full auto loan repayment.

Modify the Loan

As soon as you see that your loan payments are becoming unmanageable, contact your lender and ask if they can modify the loan to make it easier to pay. The lender may agree to defer your payments for a short time until you can get back on your feet. Or, they might lower your interest rate, extend your loan term, or change the due date of your payments. See what you can work out.

Sell Your Car

If you can no longer afford the loan payments, and public transportation is available, you could sell the car and use the proceeds to pay off your loan.

Refinance Your Loan

Refinancing a vehicle loan allows you to take out a new loan — preferably with a lower interest rate or more manageable terms — and pay off your old loan. A lower interest rate on the new loan will make your monthly payments smaller and reduce the amount you pay over the life of the loan. Extending your loan term may also lower your monthly payments, making them easier on your budget. But be aware that with a longer loan term, you may end up paying more in interest over the life of the loan.

Once your loan application is approved and when the car loan is finalized, the new terms or rates will kick in.

Recommended: 8 Tips on How to Refinance an Auto Loan

The Takeaway

If you can no longer afford to repay your auto loan, there are several options to explore before you consider an auto loan settlement. For instance, modifying or refinancing your loan could help you pay what you owe, while also protecting your credit score and financial future.

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 you do a settlement on a car loan?

If you’re no longer able to make your car loan payments, a car loan settlement may be an option to explore to help pay your auto loan debt for less than you owe. Just be sure to weigh the pros and cons of auto loan resettlement first.

Does settling an auto loan affect your credit score?

Settling an auto loan will have a negative impact on your credit score. An auto loan settlement will remain on your credit report for seven years and could affect your ability to get loans in the future.

How long does a car refinance settlement take?

The length of time an auto loan settlement takes varies by lender and other parties that may be involved, such as collections. If you’re in danger of defaulting and you think an auto loan settlement is your best option, reach out to your lender to start the process as soon as possible.

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.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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-Q325-061

Buying a new or used car with an auto loan always requires you to make principal payments over a set term. The principal is the amount of money you borrow to finance the purchase of your vehicle. Paying the principal on a car loan can be done on a monthly basis over the life of the loan.

You must pay down the principal and cover any finance charges owed on your car loan. Auto loans can come with fixed interest rates that never change or variable interest rates that can fluctuate over the life of your loan.

Car loans can have short terms under 48 months or longer terms approaching or exceeding 144 months. Financing the purchase of a car with auto lending generally requires you to repay your principal and any finance charges over a set term.

You may have the option to reduce your overall interest costs by making extra car loan payments toward principal. Below learn the difference between paying down principal vs. paying down interest.

What Is Principal Balance on a Car Loan?

The principal balance on a car loan is the total amount of money you owe in principal and doesn’t include finance charges or late fees. For example, getting $40,000 in financing under a 60-month car loan begins with an outstanding principal balance of $40,000. In a typical car loan, the principal balance would shrink with each monthly payment you make on the loan.

Car loans generally include a car loan amortization payment schedule. This means borrowers are generally required to make minimum monthly payments over the life of the car loan. Monthly repayments may go toward principal, interest, and fees. Making extra payments toward principal can reduce the amount of interest you pay over the life of your loan.

For example, the minimum monthly payment on a $40,000 car loan with a 60-month term and 7% simple interest rate is about $792. Paying that amount for 60 consecutive months would result in you paying $40,000 in loan principal and about $7,523 in interest by the 60th payment. Paying an extra $10 per month, however, would result in you paying $40,000 in principal and saving $115.92 in interest over the life of the loan.

Can I Pay the Principal on My Car Loan?

One of the obligations of a car loan is that you repay the principal in full plus any interest charges and fees that might apply. The principal is the amount of money you borrow to finance the purchase of a new or used car.

If you have a $40,000 car loan with a 60-month term and 0% annual percentage rate (APR), you would be expected to repay $40,000 by the end of the 60-month term. In this example, you could satisfy the debt by making 60 monthly payments of $666.67.

The way how a car loan works is you borrow money from a lender, purchase a vehicle from a seller, and then repay the loan over a set period under the terms and conditions of an auto financing agreement. Car loans typically have a simple interest rate rather than a precomputed rate.

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

Will My Car Payment Go Down If I Pay Extra?

Your final car payment may go down if you pay extra toward principal. For example, a $25,000 car loan with a 60-month term and 6% simple interest rate would include a $483.32 monthly payment obligation. The 60th and final payment on that loan would be about $139 if you’re allowed to make a recurring $5 extra payment each month toward principal without penalty.

Consider the following points:

•   You may have the option to make extra payments on a car loan with no prepayment penalty.

•   Some lenders may allow you to designate your extra payment as principal only.

•   Making extra payments toward principal can reduce your total interest costs over the life of the loan.

•   Your final car payment may go down if you pay extra each month.

Paying the principal on a car loan with ordinary and extra payments can minimize your interest charges and allow you to get out of debt faster. Some car loans, however, may include precomputed interest charges. Making extra payments on a car loan with precomputed interest is generally not as beneficial as making extra payments on a car loan with simple interest.

The interest on a precomputed loan is calculated upfront when the loan is made, whereas interest on a simple-interest loan typically accrues daily on your outstanding principal balance. Making extra payments on a simple-interest loan can therefore generate more savings than making extra payments on a precomputed loan.

You may be entitled to a refund if you pay off your precomputed interest auto loan early. The refund, however, is typically lower than what you might have saved if the loan had charged daily simple interest on your outstanding principal balance.

Making extra payments might make the most sense if your lender charges daily simple interest. In general, less interest will accrue over the life of your loan if you pay extra on a simple-interest loan.

Recommended: Auto Loan Refinance Calculator

How to Pay Principal on Car Loan

Borrowers may have different options for paying the principal on a car loan. One option is for the borrower to simply repay the loan in accordance with the loan payment schedule. Making the minimum required payment amount each month will allow you to fully repay the principal loan amount by the final scheduled payment date, aka the loan maturity date.

Another option borrowers may have is to make extra payments above and beyond the required payment amount each month. As mentioned earlier, some lenders may allow borrowers to designate an extra payment as principal only. Making extra payments toward principal can reduce simple interest charges over the life of your loan.

Borrowers may also have the option of paying off the car loan early without incurring any prepayment penalties. For example, a borrower with a 60-month car loan could pay off the remaining loan balance well before the 60th payment date. Paying the loan off early may minimize the amount of interest you pay on a simple-interest car loan.

You can also pay off the principal loan amount with auto refinancing. Consider the following points:

•   Refinancing pays off your original loan agreement and replaces it with new loan terms.

•   You can refinance auto loans almost immediately.

•   The best time to refinance the automobile may be whenever you can secure a lower interest rate or whenever you need a lower monthly payment.

•   The cons and pros of automobile refinancing are something you may consider when evaluating whether to seek an auto loan refinance.

•   The cost to refinance auto loan obligations may include a number of fees that can be a dealbreaker for some consumers.

Refinancing an auto loan can help borrowers get a lower interest rate, but lowering your monthly payment by extending your loan term could increase your total interest costs. Auto refinancing may also cause your credit score to temporarily dip by several points if the refinance company checks your credit report with a hard inquiry.

Recommended: Most Expensive Car Repairs

Paying Down Principal vs Paying Down Interest

The table below compares paying down principal vs. paying down interest:

Paying Down the Principal vs Refinancing Your Car Loan

The table below compares paying down car loan principal vs. refinancing your car loan:

Is It Better to Pay the Principal or Interest?

Borrowers who can afford to pay extra principal on a car loan may find that better than paying maximum interest charges. If you have a car loan with simple interest, paying extra principal may minimize your total interest costs over the life of the loan.

As mentioned earlier, the minimum monthly payment on a $40,000 car loan with a 60-month term and 7% simple interest rate is about $792. Paying that amount for 60 consecutive months would result in you paying $40,000 in loan principal and about $7,523 in interest by the 60th payment. Paying an extra $10 per month, however, would result in you paying about $7,407 in interest over the life of the loan as well as having a significantly smaller final payment, one that’s less than $100.

In some cases it might be better for you to make minimum payments on the car loan and nothing extra. Some lenders, for example, may charge a prepayment penalty if you pay off the car loan early. What’s best for you may depend on the terms and conditions of your loan agreement and your personal financial circumstances.

Here are some points to consider:

•  Lenders may have specific car loan requirements requiring borrowers to provide proof of identity and proof of income when applying for financing.

•  In terms of how to save money on a car, making larger down payments can reduce your monthly payment obligations on a car loan.

•  A private party auto loan can provide you with financing to buy a used vehicle from a private person selling a car.

•  Banks, credit unions, and nonbank financial institutions may offer different types of car loans.

Auto leasing is another financing option you may consider if you need access to a new car. When considering the option of leasing vs. buying a car, you could lease a vehicle through a standard three-year contract with a leasing company. A car lease typically includes a lower monthly payment than auto loan financing.

Recommended: Guide to RV Refinancing

The Takeaway

Paying the principal on a car loan is required whenever you borrow auto financing. You can make minimum payments each month or extra payments to pay off your debt early.

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 you pay down the principal of a car loan?

Yes, you can pay down the principal on a car loan in several different ways. One way is to simply pay the monthly payments as scheduled. Another way is to make extra payments toward the principal, which can minimize your interest costs if the lender permits. You may also have the option to pay the loan off early or refinance your existing loan agreement with a different lender.

Is it better to pay the principal or interest?

Borrowers who can afford to make extra payments on the principal may find that better than paying maximum interest charges. Paying the principal can help you get out of debt. If you have a car loan with simple interest, making extra principal payments can minimize your interest costs over the life of the loan.

Will my car payment go down if I pay extra?

Your final car payment may go down if you pay extra toward principal. For example, a $25,000 car loan with a 60-month term and 6% simple interest rate would include a $483.32 monthly payment obligation. The 60th and final payment on that loan would be about $139 if you’re allowed to make a recurring $5 extra payment each month toward principal without penalty.

Borrowers are expected to repay the principal loan amount in full. You can pay the loan off faster and minimize your interest costs by making extra payments toward the principal.

Photo credit: iStock/Kanizphoto

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.

SOALR-Q325-060

When people are looking for a new vehicle, they often weigh the pros and cons of an auto loan vs a lease.

Here’s one key benefit of a leased car: You’ll usually have a lower monthly payment because you aren’t paying for the full value of the vehicle. In a sense, leasing a vehicle is like renting it, usually for a period of two to four years.

If you’re looking at leasing for the first time, you’ll quickly see how this process comes with its own procedures and lingo. And one of its unique terms is a “car lease acquisition fee.” This is also known as a car acquisition fee or an assignment, administrative, or origination fee.

This article will provide you with helpful information about leasing a vehicle, including how you may be able to negotiate the amount of the car lease acquisition fee.

What Is an Acquisition Fee?

An acquisition fee is a fee charged by a lender to originate your lease or loan. Because of this, sometimes it’s also referred to as an origination fee. Acquisition fees can include both car acquisition fees and real estate acquisition fees.

Recommended: Should I Pay Off My Car Before Traditing It In?

Car Acquisition Fees

There are often various finance charges when you set up a car lease. A car acquisition fee is a fee that’s charged by the organization leasing the vehicle to cover the administrative costs of setting up the lease. These costs can include the pulling and reviewing of credit reports, the verification of car insurance, the creation and signing of paperwork, and so forth.

It’s important to remember that this fee covers only the administrative/document costs associated with setting up the lease, not all costs. There may also be a disposition fee that covers the dealer’s costs at the end of the lease period, for example.

You may be wondering whether all leasing companies charge this fee. Car dealerships do have a significant amount of leeway when crafting their leases, so it’s possible that you could find one without this charge. That said, car lease acquisition fees are widely used in the industry, so it may be challenging to get a dealer to eliminate it unless you’re willing to give up something else in return.

Note: You typically will not pay an acquisition fee when refinancing a car loan.

Real Estate Acquisition Fees

A real estate acquisition fee is a fee you pay when you purchase property, such as a home or commercial property. Similar to car acquisition fees, real estate acquisition fees cover the expenses charged from arranging a property lease or lean agreement, including closing costs, underwriting, real estate agent commissions, and more.

If you’re closing on a property, expect to pay a 1%-2% real estate acquisition fee, though in some cases it could be as high as 5%. In most cases, the larger the deal, the smaller the percentage the real estate acquisition fee will be.

Recommended: Can You Refinance a Car Loan With Bad Credit?

How Much Are Acquisition Fees?

Car acquisition fees are typically a few hundred dollars but can be more than $1,000. Automotive resource Edmunds.com, for example, shares that the fee typically ranges between $595 and $1,095, depending upon the leasing company and the vehicle chosen.

Overall, a more expensive vehicle tends to come with a higher fee. A luxury vehicle typically has a bigger one than a more utilitarian vehicle, for instance.

These fees can be paid upfront or a portion of the overall fee can be added to each monthly lease payment (more about that choice later).

Does Your Loan Have an Acquisition Fee?

As you read through your lease paperwork, keep an eye out for mentions of this fee and its amount, including in any fine print.

If you don’t see anything or you want clarification, simply ask the dealer or lender you’re working with about the presence and specifics of this fee. Lenders are legally required to disclose fees.

Recommended: Can I Have Multiple Car Loans?

Can You Negotiate Lease Buyout Dealer Fees?

As a lessee (a person leasing a vehicle), you can ask to negotiate just about any part of the process, including the car lease acquisition fee. The lessor (leasing company) may be willing to negotiate — or it may not.

If it does agree to lower this particular fee, it may boost your interest rate (also called the money factor, lease rate, or lease factor). That means that lowering the acquisition charge may or may not end up resulting in a better deal for you overall.

It can make sense to check with multiple leasing companies to see which one will negotiate the car lease acquisition fee in the most favorable way for you.

If you aren’t able to negotiate this specific fee, there are other methods of negotiating a car lease, from tweaking the vehicle’s valuation to reducing or eliminating other charges and fees.

So, don’t get too hung up on this specific negotiation. Instead, work to get the most favorable agreement overall.

Once you sign a lease contract, of course, negotiations are over. Be sure to determine that you’ve gotten the best lease that you can before you close on the deal.

Recommended: Guide to Car Loan Interest Rates

Paying Acquisition Fees

There are two main ways lessees can pay this fee: upfront in a lump sum or as part of their monthly car loan payments.

If you decide to make it part of your payment, the fee will be added to the principal amount of the lease with payments calculated on that larger principal amount.

For example, if you have a $30,000 lease and a $700 acquisition fee, you can pay the $700 when signing the lease documents and have your payments figured on $30,000, or you can have a lease amount of $30,700 with monthly payments calculated on that figure.

Which is better?

By adding the fee to the principal amount, you’d pay more overall because of compound interest.

Having said that, if the vehicle is involved in a significant accident (to the point that it’s totaled), you wouldn’t be refunded any of the car acquisition fee if you’d paid it upfront.

If your acquisition charge is included in the monthly payment, though, and the payments stop because a vehicle was totaled, you wouldn’t end up paying the full fee.

No matter how you end up paying this charge, if all goes well with the vehicle, you may decide to purchase it through what’s called a lease buyout. That means that when the lease period has ended, you buy it at the predetermined price listed in your leasing agreement. Note that, in some cases, a lease agreement may prohibit this option. So, if you may want to buy the vehicle at the lease’s end, make sure the language in your agreement reflects that option.

Recommended: Getting Out of a Car Lease Early

The Takeaway

Benefits of leasing a car can potentially include getting a lower monthly payment. Then, if you can successfully negotiate aspects of the lease, such as the car lease negotiation fee, you can improve upon the dealer’s initial offer to get an even better deal with your lease.

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 an acquisition fee negotiable?

Yes, an acquisition fee may be negotiable. When leasing a car, it’s best to negotiate with the dealer to get the best deal, which may or may not include asking them to waive or lower the car lease acquisition fee.

Can acquisition fees be waived?

In some cases, yes, the acquisition fee may be waived. However, lenders will oftentimes raise the interest rate when waiving fees, so it’s always best to look at the fine print and figure out which option will get you the best deal.

What is a typical acquisition fee in real estate?

A typical acquisition fee in real estate is 1%-2% of the purchase price of the property, although it could be as high as 5%. Like car acquisition fees, this fee includes the costs incurred to originate your loan or lease, and it may be negotiable.

What is a reasonable acquisition fee?

The average car acquisition fee ranges from $595 to $1,095.

Photo credit: iStock/Mariia Vitkovska

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 .

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-Q325-059

Having another person take over your car loan is possible. You may want someone to take over your car loan if you’re struggling to keep up with your monthly payment. In 2025, the average car payment for a new car was $745, and the average payment for a used car was $521, according to Experian.

Having someone take over your car loan may give you some much-needed relief, but the process of getting someone to take over can be quite complex. Below we share five steps for how someone can take over your car loan.

Can a Car Loan Be Transferred to Another Person?

Transferring a car loan to another person is possible. An auto loan transfer is exactly what it sounds like — a way to shift an auto loan from one borrower to another. It also involves getting the lender’s permission to transfer the loan and then keeping the lender in the loop. In general, auto lenders may not be thrilled with loan transfers and often might make people who want them jump through hoops to get the job done.

The actual auto loan transfer process depends on the specific contract language and inherent restrictions. An example of the latter: The new borrower may have to meet a strict credit score requirement, take on a new loan contract, and complete a load of paperwork if the lender greenlights the deal.

There’s one common reason that original borrowers may want to transfer their auto loan to another person: They can no longer afford the vehicle loan payments. Whether it’s a job loss, a medical emergency, or some other financial problem, not being able to make your auto payments can eventually mean that having someone else take over the car loan looks like the best solution.

Recommended: How to Trade in Car

How Can Someone Take Over a Car Loan?

The five steps below detail how you may transfer a car loan to another borrower:

1. Contact the Original Lender

Step one is to contact the lender, explain the situation, and make a good case for transferring the loan to another driver.

The auto lender may decide to go forward with the deal if you can prove economic hardship and if the new borrower has the financial means to take over your car loan payments.

That usually means that the lender vets the new borrower just as it would for any auto loan, looking for income, a robust credit score, and a proven history of paying auto loan principal or any other debts.

2. Check Your Auto Loan Contract

Even though you’re cleared to transfer the auto loan and car title to another driver, it’s still crucial to review your auto loan contract. That will tell you who the debt needs to be paid to, whether or not there are any special fees that are triggered when you transfer a vehicle loan, and if there are terms, rules, or restrictions involved in the proper transfer of a vehicle loan.

3. Have Your Borrower Check the Contract

Whoever will be taking over car loan payments needs to check the original loan contract to see what responsibilities, financial and otherwise, may be in play. The original contract won’t necessarily be exactly like the new contract, as the lender may adjust the terms to better fit the new borrower’s credit and income status. But the original contract still serves as a good reference point for the new borrower, and is well worth a look.

4. File the New Loan Paperwork

The new borrower can file the new auto loan application based on the lender’s requirements. If the loan is with the same bank or auto lender, the new loan will probably be similar to the old loan, likely with the same terms and conditions.

Be aware that the auto lender may ask, or even demand, that the new borrower simply cosign the existing auto loan to make things easier for that lender. In that situation, the new borrower cosigns the original loan, takes responsibility for car loan payments, and starts making payments based on the loan’s existing terms and conditions.

Recommended: Auto Loan Refinance Calculator

5. Make a Title Change

When the new auto loan is approved, the next step is to transfer the car title from the old owner to the new owner. An auto’s title signifies the true owner of the vehicle and is required by the lending institution before the transaction can be completed.

Both the old owner and the new one can usually get a title transfer at their local Department of Motor Vehicles. Both parties will need proof of identity, like a driver’s license. A bill of sale or buyer’s order may also be required before the title can be transferred to the ultimate owner.

Proof of active auto insurance may also be needed to complete the transfer.

Recommended: Reinstating a Car Loan After Repossession: What You Need to Know

Alternatives to Transferring an Auto Loan

If you were contemplating trying to transfer your auto loan to someone else but don’t want to deal with the hurdles, here are some alternatives you may consider:

Sell the Vehicle to Someone Else

This scenario may be the cleanest and quickest way to resolve an unwanted auto situation. Selling a car with a lien can be cumbersome, but such a sale may provide fast cash if the value of your car is greater than the outstanding balance on your car loan.

Selling the vehicle may not be right for you if you have an upside down car loan in which your auto loan debt is greater than the value of your car.

Recommended: How Many Car Payments Can You Miss Before Repo?

Ask Family for Temporary Help

Another alternative to transferring an auto loan is having a family member or friend take over your auto loan payments temporarily. If you’re an auto loan holder and you’re having short-term financial problems (if you’re between jobs, for instance), you can ask a trusted friend or family member to take over the loan for a few months until you’re financially solvent again.

The friend or family member could even make extra payments to help you pay off the car loan early. In that event, it’s highly recommended that both parties sign a contract stipulating the length of the contract and how the auto loan will be paid.

If the temporary auto loan payer will also be driving the vehicle on a regular basis, you need to be aware that any parking tickets or toll booth violations will be filed in your name. Traffic accidents are a risk, too, so the temporary driver would also need to be covered by insurance.

Recommended: 9 Tips for Buying a Used Car

Refinance the Auto Loan

To relieve some financial pressure, you can refinance the auto loan. Auto refinancing may potentially let you lower your interest rate or extend the loan term to reduce the size of your monthly payments. To do this, you’ll likely need to have good credit. Some lenders may require a FICO® Score of 680 or higher as part of their auto refinancing eligibility requirements.

Recommended: Refinancing a Car Loan: What to Consider

The Takeaway

It’s possible to transfer an auto loan to someone else, but given the complexity of handling an auto loan transfer, you may want to view the process as a last resort. There may be easier options, like selling the car or refinancing the auto loan.

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 taking over a car loan an easy process?

No, the process of how someone can take over a car loan typically isn’t easy. Transferring an auto loan can be complicated for the original borrower, the new borrower, and the auto loan lender.

How do you define the term “car loan takeover?”

A car loan takeover means transitioning an original auto loan from one borrower to another, being sure to get the lender’s permission to transfer the loan. That’s the car loan takeover definition, but the process of how someone can take over a car loan can be complicated.

Is there a good alternative to transferring an auto loan to another person?

Alternatives to transferring an auto loan to another person include refinancing the vehicle, selling the vehicle, or having a trusted family member take over the loan payments temporarily. Your personal circumstances may dictate whether any of those alternatives is right for you.

Photo credit: iStock/FG Trade Latin

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-Q325-058