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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.

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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.

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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.

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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

For those whose primary source of income is Social Security disability, obtaining a car loan can prove more difficult. It becomes even more challenging for those with bad credit, due to the fact that Social Security benefits cannot be garnished. Bad credit lenders look for proof of garnishable income in case a borrower defaults on their loan and the lender needs an avenue through which to recoup their money.

That said, if you rely on Social Security disability for income, there are still options for where a person on Social Security disability can get a car loan. It’s also possible to refinance a car loan for people on disability.

Keep reading to learn more on Social Security disability, how to get a car loan on disability income, and how to refinance your car on Social Security disability.

What Is Social Security Disability?

If you’ve been injured on the job or are unable to work due to illness or another impairment, you may be entitled to receive monthly Social Security Disability Insurance (DI) payments. DI is part of the same government program that issues Social Security retirement benefits.

Disability benefits are available to workers and certain family members as long as they’re “insured.” This means that they must have worked long enough and paid Social Security taxes on their earnings.

Benefits are generally paid out as long as your condition has not improved and you remain unable to work. The Social Security Administration reviews cases periodically to determine whether or not an individual still qualifies to receive payments.

Car Loan Interest Rates and Social Security Disability

When lenders consider what rate for a car loan to offer when you apply, they’re thinking largely about risk. That’s why they’ll take a look at your credit score, which can give them an idea of your history of paying off your loans on time.

A higher score suggests you’re likely to make on-time payments, which in turn means that lenders are more likely to offer you a lower interest rate. Borrowers that are seen as more risky — for example, those with lower credit scores — are less likely to qualify for loans with lower interest rates.

Lenders will make similar risk calculations when looking at your income. They will want proof of a steady source of income that you can use to pay your bills (unless, of course, it’s a no income verification car loan).

On the face of it, Social Security disability should fit that bill. However, as mentioned above, because Social Security wages are not garnishable, your lender has no recourse to access them if you default on your loan. That bumps up the risk quotient for the lender, and as a result, they may charge a higher interest rate. Unfortunately, this will increase the overall cost of your loan.

Recommended: How to Get Out of a Car Loan

Refinancing a Car Loan on Social Security Disability

When you refinance a car loan, you take out a new loan — ideally, at a lower interest rate or with better terms — and use it to pay off your old loan. Refinancing can make sense if interest rates have dropped or your finances have improved, helping you qualify for a loan with better interest rates that will save you money over the life of the loan.

Refinancing can also be a way to make monthly payments more manageable. By refinancing to a new loan with a longer term, your monthly payments should drop. However, you’ll be paying interest on your loan for longer, which can ultimately increase the cost of borrowing.

If you’re refinancing an auto loan while collecting Social Security disability, you may run into some of the same challenges as you would when applying for an initial loan. Lenders may be hesitant to extend credit.

Recommended: What Questions to Ask When Refinancing

How to Secure a Car Loan on Disability Income

Fortunately, there are many ways you can secure a car loan (or refinance your current auto loan) on disability income, including having the ability to work or using a cosigner.

Social Security Disability With a Job

It is possible to work and still receive Social Security disability. In 2025, for example, workers with disabilities other than blindness could make up to $1,620 a month before their benefits would stop. For those with blindness, the amount is $2,700 per month.

That said, work expenses — such as specialized equipment needed to work, a wheelchair, or an attendant — are deducted when your earnings are counted. This may mean that you technically can earn much more than the $1,620 limit, depending on your circumstances.

With a higher income — and with a portion that’s garnishable — lenders may be more willing to extend credit for an auto loan or an auto loan refinance.

Recommended: 0% Percent APR Car Loan: Can You Get One?

Social Security Disability With a Cosigner

Applying for a loan with a cosigner can increase the chances you’ll get approved if your income comes from Social Security disability. A consigner is usually a family member or a close friend who agrees to share responsibility for a loan and who better meets the requirements for a car loan. By cosigning, they promise that if you default on your loan for any reason, they will step in and pay the bill.

Be aware that your loan will show up on your cosigner’s credit report, as well. That means that if something goes awry with the loan and a payment is missed, it will hurt both of your credit scores.

Recommended: Can a Cosigner Become the Primary Borrower?

Social Security Disability With Bad Credit

If you have bad credit, you may be able to purchase a car at a “buy here, pay here” dealership. They handle financing in-house instead of through a third-party lender. That means they can offer buyers any terms they want, and they may not even run a credit check. This can help you get around ​​car loan credit score requirements.

The catch: These dealerships may offer you older used cars with higher mileage. Further, they may not report on-time payments to the credit reporting bureaus, which won’t help you to build your credit score.

Approval Process for People on Social Security Disability

When applying for an auto loan while on Social Security disability, you may want to save as much as you can for a down payment. This can help to increase the chances you’ll qualify for a loan. Also, make sure to prepare proof of any secondary sources of income that produce garnishable wages.

Additionally, you’ll want to become familiar with your credit score and do what you can to build it. This may mean paying bills on time and paying down other debts before you apply for a new loan.

Recommended: Private Party Auto Loan

The Takeaway

While it may be trickier for people on Social Security disability benefits to secure an auto loan or a refinance, there are some steps that can make it easier. This includes using a cosigner and bringing in extra income if you can.

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 a person on Social Security disability get a car loan?

Yes, a person on Social Security disability can get a car loan. Lenders consider Social Security disability payments as a reliable source of income. Approval depends on factors like credit score, debt-to-income ratio, and loan affordability.

Do people on Social Security disability get better rates on car loans?

People on Social Security disability likely won’t qualify for the lowest interest rates. This is due to the fact that Social Security wages are not garnishable, so a lender has no recourse to access them should the borrower default on their loan. This increases the lender’s risk. Still, it’s important to shop around among a number of different lenders to find the lowest rate available.

How long is the car loan approval process for people on Social Security disability?

The length of time it takes to get a car loan while on Social Security disability will vary, but it shouldn’t take more than a few days for most loans.

Photo credit: iStock/Peter Carruthers

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.

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It’s possible your car loan has a grace period if you cannot make a car loan payment on or before its due date. A grace period for a car loan is usually 10 days past the payment due date. During this time, the car payment typically will be accepted without penalties or other consequences.

Keep reading to learn how car payment grace periods work, if there is a late car payment fee, if you can make a partial car payment, and more.

When Is a Car Payment Considered Late?

As with other banking agreements, a car payment is typically considered late if the amount due has not been posted to the lender on the date it is due. However, it’s always a good idea to check with the specific lender as to when a car payment is considered late. Some lenders may require the payment to be posted by 5 p.m. on the due date, while others may allow payments to be posted until midnight.

Some lenders may also extend a so-called “grace period” to auto borrowers, which allows a payment toward car loan principal and interest to be counted as on time so long as it arrives within a certain window after the due date.

Because many auto loans are considered “secured loans” — with the car itself used as collateral — timely car payments are especially important in order to avoid car repossession. The easiest way to avoid the consequences of a late car payment is by ensuring that all payments are made on time, based on the schedule outlined in the terms of the car loan agreement.

How Many Days Is the Grace Period for Car Payments?

In general, a grace period for a car payment is 10 days past the payment due date. During this time, the car payment typically will be accepted without penalties or other consequences.

That being said, there is no legally defined grace period attached to a car loan. Although some lenders may offer a late car payment grace period or be willing to waive late fees and penalties on a slightly overdue payment — especially if it’s a rare occurrence — they’re not obliged to do so.

Is There a Late Car Payment Fee?

Making a late car payment may result in late car payment fees and other penalties. Depending on the car loan agreement, these fees may be applied as soon as the payment becomes past due (for example, after 5 p.m. if the payment deadline is at the close of business), or if a grace period is offered and the payment is not made by the end of that window.

However, just like a grace period, late fees on car payments will depend on the specific terms in the car loan contract as well as state laws. The best way to find out whether late car payments are subject to fees is to check the loan agreement or talk to the lender.

Is Partial Payment Considered a Late Car Payment?

Unfortunately, making a partial payment likely won’t help you out, as a partial car payment is generally still reported as a late payment. A partial payment may not cover your car loan finance charges for the month.

That being said, this could vary depending on whether this is your first time making a late payment or it’s become a habit. Depending on the lender, they may accept a partial payment for the time being if you’ve never made a late car payment before.

Recommended: Auto Loan Refinance Calculator

What Happens If You Exceed the Grace Period on Your Car Payment?

If you still haven’t made a payment even after the late car payment grace period comes and goes, you could face consequences, such as late car payment fees, credit score declines, and even repossession of your vehicle. Here’s the rundown on the possible repercussions:

1. Late Car Payment Fees

The first way that late car payments can cost you is in the form of extra fees and penalties. There is no set formula that dictates the cost of late car payment fees — these will vary from lender to lender and depend on the specific car loan as well as your state’s laws.

As such, the only way to determine precisely how much a late car payment may cost is to consult the car loan agreement or check directly with the lender. (If an individual is at risk of a late payment due to a lack of cash flow, it’s a good idea to get this information in advance to weigh the full cost implications of missing the payment due date.)

2. Potential Impact on Your Credit Score

An individual’s credit score is a number used to inform future prospective lenders how likely that person is to pay their bills — and that score is determined by their existing credit payment behaviors. One’s credit score takes into account all types of existing debt, including car loans, and the repayment history. Late payments are considered a sign of risk and may reduce one’s score, which in turn can make it even harder to get lower car payments anytime down the road.

While paying any bill late can indeed ding a person’s score, overdue payments are not noted on one’s credit report until they are a full billing cycle (usually about 30 days) past due. After that, lenders may report late payments to all three major credit bureaus.

3. Car Repossession

Car loans are secured loans that use the vehicle itself as collateral — meaning that if the purchaser defaults, the lender may recoup their loss by repossessing the car. But precisely how repossession works will depend on the car loan agreement and state laws. The car loan should spell out what constitutes a late payment, as well as if there is an acceptable grace period.

Once a payment is officially considered late, the lender may be entitled to reclaim the vehicle or to remotely deactivate it.

When a car is at risk of repossession, an individual may have a right to “cure” or reinstate the car loan, whether before or after repossession, if state law permits or this is written into the loan contract. If such a right exists, the individual would be able to make up the payment and keep their car.

It’s important to note that repossession does not necessarily mean an individual can walk away from their lease altogether. They may still be required to repay some or all of their loan, and there may also be additional repossession costs. Additionally, a car repossession will also remain on an individual’s credit report for seven years from the original late payment.

Options to Avoid Repossession

In order to avoid your car being repossessed, there are a few things you can do.

Make Your Payments on Time

The best way to avoid a repossession is to avoid making a late car payment. But given the high cost of buying a car, that may be challenging — especially for individuals whose car loans have less than favorable rates. However, it’s always a good idea to make your monthly car payments a priority and do your best to pay them on time.

Refinance Your Car

Another way to possibly avoid your car being repossessed is to refinance your current auto loan. One of the benefits of car loan refinancing is that it can give individuals an opportunity to take advantage of more favorable loan terms — such as lower interest rates, a longer loan term or a lower initial payment — to make car payments more affordable.

In some cases, such as if an individual chooses to spread their payments out over a longer period, this can increase the total cost of buying a car, but reduce their monthly payments. It is, however, important to note that there may be costs associated with refinancing, such as an early termination fee on the existing car loan and registration and/or title transfer fees.

Recommended: Guide to Finance Charges on Car Loans

Talk to Your Lender

And for individuals who may be staring down a late payment? Talk to the lender before the payment is due to see what arrangements can be made. Some lenders may allow a payment deferral (the option to “skip a payment” may also be written into the lease agreement) or be willing to make accommodations on a case-by-case basis.

Recommended: Guide to Writing Off a Car for Business Use

The Takeaway

Buying a car can be expensive — and if you’re at risk of a late car payment, it can be even more so. One of the best ways to reduce the risk of late payments (whether or not your lender offers a grace period) is to find the most favorable loan for your individual circumstances.

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 many days late can you be on a car payment?

Typically, you can be 10 days late on your car payment without penalty. However, this varies by lender, so make sure to alert your lender if you will not be able to make your car payment on time.

Does a grace period include weekends and holidays?

Yes, grace periods do include weekends and holidays. If your payment is due on a weekend or holiday, though, the payment will be extended to the following business day.

Do payments go through on weekends?

Payments are not typically processed on weekends. Instead, the payment will go through on the next business day.

Photo credit: iStock/Olga Yastremska

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

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