You can get out of an upside-down car loan with a number of strategies, such as making extra payments toward the loan, refinancing the loan, or selling the vehicle. Learn more about what being upside down on a car loan means a🔯nd ways to get out of it.

What Is an Upside-Down Car Loan?

Being upside down on a car loan means that you owe more than the vehicle is worth. You may also hear this situation referred to as having negative equity. If you want to trade in your car but have negative equity, you would need to pay off that amount before you could take out a new loan to purchase another vehicle.

If you have negative equity, you can use several strategies to 澳洲幸运5开奖号码历史查询:get auto loan debt relief.

How to Get Out of an Upside-Down Car Loan

If you’re upside down on a car loan, there are some options for getting out of it before you 澳洲幸运5开奖号码历史查询:default on the note. The one that is best for you may depend on you♏r budget and whether you’re committed to keeping the 🌌vehicle.

Pay Off the Loan

The first solution for an upside-down loan situation is to 澳洲幸运5开奖号码历史查询:accelerate your payoff, if you're able. The faster you pay th🐽e loan off, the sooner you can eliminate that debt.

There are a few optio🐭ns for paying off an auto loan faster:

• Pay extra to the 澳洲幸运5开奖号码历史查询:principal each month.
• Apply windfalls, like tax refunds, gifts, or work bonuses, to the principal balance.
• Make one lump-sum payment to pay the debt in full.
  

Reviewing your budget and savings can give you an idea of which⛎ option might work best.

Refinance the Loan

澳洲幸运5开奖号码历史查询:Refinancing an auto loan means taking out a new loan to pay off an existing debt. If you can qualify for a new loan with a 𒐪lower interest rate, you might refinance to g🍌et out of an upside-down car loan.

Refinancing doesn’t eliminate your auto loan debt. You’ll still owe the loan balance that you refinanced. However, having a lower inter༺est rate could make it easier ꦚto pay off more of the principal each month and get out of debt faster.

Sell the Vehicle

You could sell the vehicle to get cash to pay off the loan, including the negative eꦦquity balance. Selling to a private buyer means you might have more room to negotiate a 💮price that would allow you to get enough cash to cancel out the negative equity.

Just remember that if you can’t get enough from the sale to pay off the negative equity, you’ll need to make up the difference out-of-pocket.

Surrender the Vehicle

The♓ last option for getting out of an upside-down loan is handing the vehicle over to the lender. Voluntary surrender can be a more favorable option than allowing the lender to repossess your car.

When a vehicle is repossessed, the lender can auction off the vehicle, but if they get less than what’s owed for the loan, you may have to pay the difference.

How Do Upside-Down Car Loans Happen?

Car owners can find themselves in a negative-equity situation for a number of r꧂easons. For example, you might be upside down on a car loan if you:

• Have a long-term loan and your vehicle has significantly depreciated in value since you purchased it.
• Took out a 澳洲幸运5开奖号码历史查询:no-money-down auto loan or paid above the vehicle’s sticker price because you included add-ons.
• Purchased an expensive vehicle that has not held its value as expected.
• Accepted a loan with a high 澳洲幸运5开奖号码历史查询:interest rate so that more of your payment is going to the interest than the principal.

Depreciation refers to how quickly an asset loses value. In the case of vehicles, cars lose about 20% of their value in the first year and continue to depreciate each subsequent year.

Here’s an example of how depreciation can lead to an upside-down car loan: Assume you pay $30,000 for a brand-new car. Following the 20% rule for depreciation, you can expect it to be worth $24,000 one year later. Meanwhile, you’ve paid off $4,000 of the $30,000 car loan that you took out to buy it. You owe $26,000 to the loan, which is $2,000 more than what the car is actually worth. You’re now upside down on the debt.

Tips for Avoiding an Upside-Down Car Loan

Avoiding an ꧑upside-down car loan is possible with a little planning before you buy and some strategic thinking afterward. Here are a few ways to minimize your risk of ending up in an upside-down car loan.

• Skip the add-ons: Add-ons, such as guaranteed auto protection (GAP) insurance products, can increase your total cost of borrowing and often only serve to benefit the lender or dealership rather than you. Reviewing the loan agreement carefully and opting out of add-ons that you don’t need can reduce the amount you pay so that you’re less likely to become upside down.
• Increase your down payment: The larger your 澳洲幸运5开奖号码历史查询:down payment, the less you have to finance. Opting for a smaller loan could allow you to pay the debt off faster and keep pace with depreciation.
  
• Choose a shorter loan: A shorter loan term can mean a higher monthly payment. However, paying the loan off faster can save money on interest, plus you won’t be left with debt for a rapidly depreciating vehicle.
• Pay taxes and other fees up front: Your lender might give you the option to roll taxes and other fees into the loan. That means less cash you’ll have to pay out of pocket; however, adding to your loan costs can increase the likelihood of becoming upside down.
• Shop around for rates: The lower your interest rate, the less costly your auto loan will be overall. Checking your 澳洲幸运5开奖号码历史查询:credit scores and considering the minimum score requirements for different lenders can help you find auto loans at the best rates.
• Choose a reputable lender: Sometimes car buyers can end up with negative equity simply because they choose a bad lender. Some disreputable lenders may add on fees or other hidden charges that can increase what you pay for a new car. Checking reviews and asking friends and family for referrals can help you avoid these bad lenders.
• Plan your car-buying budget: Consider how much you can afford to pay for a car loan. Having a firm budget can help you avoid buying a car that’s too expensive for you or taking on a larger loan than you can handle.
  

Frequently Asked Questions (FAQs)

The Bottom Line

An upside-down cไar loan can feel like a financial burden, but there are some ways to cope with it. If yo🍷u’re shopping around for a new car loan, it’s helpful to understand how an upside-down debt situation can happen and what steps you can take to avoid it.