How Your Auto Loan Is Affected If You Bought A Lemon Car

Automobiles are intricately designed goods. It’s incredible that most new automobiles leave the manufacturing line so consistently problem-free given their complexity.

But every now and then, despite numerous trips to the dealership for repairs, a problem just won’t go away. Federal and state lemon laws may allow you to return your vehicle to the dealer for a complete refund or replacement if you find yourself in that circumstance.

What if the car you borrowed money for turns out to be a lemon? As long as you make sure your lender receives what they are owed, you are still entitled to a refund or replacement.

How Do Lemon Laws Work?

A car is referred to be a “lemon” if it contains serious flaws that could jeopardize its operation or safety while driving. Lemon laws are intended to reimburse buyers for vehicles that, despite numerous attempts at repair, nevertheless don’t live up to expectations of quality.

Every state in the country as well as the federal level have lemon laws in place. Although specifics differ from state to state, generally speaking, lemon laws operate as follows: You should receive compensation for the problem if you buy a new car with a flaw or condition that reduces its worth and it hasn’t been fixed after multiple tries (usually three or four trips to the dealer).

You will typically have to go through an arbitration process and perhaps more litigation. The type and severity of the problem determine the different therapies. The complete buyback or replacement of the car, typically at your discretion, is the maximum remedy.

Keep in mind that every state has its own lemon law, and each one differs in the specifics, prerequisites, and remedies. When you think you might have a lemon, check your state’s rules right away because there are additional time and mileage restrictions. You will also be learn how to calculate lemon value of the car.

Additionally, you should get in touch with your lender as soon as possible to let them know that you are filing a lemon law claim and to find out how your loan would be impacted if you decide to get a replacement car as your solution.


If you decide on repurchasing as your remedy, you might be eligible for further compensation. The purchase price (excluding any manufacturer rebates), as well as any “collateral charges,” such as sales and use taxes, registration and title fees, insurance costs (for the period your vehicle was out of commission), and other related costs, are all covered under lemon law. The value of any usage of the vehicle by you prior to the commencement of the defect will be deducted from the reimbursement amount. The remainder on your loan will likely be paid by the manufacturer directly to the lender out of your return.

Remember that the loan balance will not be paid off until any offset for use has been subtracted. Therefore, it is possible that the refund after offset will not completely cover the loan total in situations when there is a particularly high loan balance and a high mileage on the car. Your lender may request the difference if that occurs.

A percentage of the refund may be retained by your lender, the lienholder, to cover cancellation-related costs.


If you decide to have the manufacturer replace your car, the new car would be the same as or comparable to the old one. Additionally, you might receive payment for acceptable incidental costs. Knowing how your lender will handle any agreement on the new vehicle is crucial when it comes to your loan. The manufacturer might not be compelled to provide them for your replacement car if you bought the lemon car with exclusive pricing or financing deals.