Option #: Sell The Vehicle
If you really hate your vehicle, you can always sell it privately. The Facebook marketplace and Craigslist are full of people trying to sell any and all kinds of vehicles. Generally, private sellers can get more for a vehicle than a dealership is willing to pay. This is because the dealership has to clean the vehicle up and re-sell it for a profit. If your vehicle is valued between $6,800 and $11,000, the dealership will want to give you the lowest price they can so they can make a profit when they re-sell the vehicle. If you sell privately, there is no guarantee youll be able to get what youre asking for the car, but you can set your own price instead of waiting for an offer. The danger with this route is that you are still responsible for whatever you still owe on the vehicle. If youre upside-down on your auto loan, you arent going to be able to sell the car for what you owe. If, for instance, your loan payoff is $14,357 and you sell the car for $9,000, you are still responsible for the remaining $5,357 on the loan. You can either pay that out of pocket OR you have to continue making payments until the full amount is paid.
Option #3: Trade-in your car at a dealership
Option #4: Refinance for a lower interest rate and payment
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Whats Wrong With Being Upside
Having an upside-down car loan can negatively impact your chances of selling the vehicle, trading it in for a cheaper one, or claiming damages if it is totaled. However, if you intend to go through with the loan payments and own the car in the end, then being upside down on the loan wont really affect you negatively.
Being upside-down on a loan can affect you negatively if:
- You want to sell the car and buy a new one: Downsizing to a cheaper model with lower monthly payments will be difficult if you have negative equity.
- When your car is totaled: If your car is completely totaled in an accident, the insurance company will pay you the current estimated value of your car. Ideally, you can use this money to pay off any remaining loan balance. However, if youre upside down on the loan, the insurers amount wont cover the whole balance, and you may have to pay out of pocket.
- Trading in your car will be hard because you will have to pay the buyer an amount equivalent to the negative equity in the vehicle to get it off your hands.
How Can I Avoid An Upside
If you currently own a car, or youre browsing the market for your dream car, here are some ways to be proactive and avoid an upside-down car loan:
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Next Steps From An Upside
Turning your upside-down car loan right-side up isnt easy, but it is possible. Whether your goal is to pay the original loan off quickly or refinance your car loan entirely, you have options. And with a bit of research, you can make the best financial decision for you.
Car refinance loans not available in IA, MD, NV, or WV.
Beware Of Rising Interest Rates
As you can see, both consumers and dealers are coming up with highly creative ways to deal with this growing issue. The biggest danger is that rising interest rates even increases as small as one percent could equate to an increase of several hundred, or even a few thousand dollars over the life of the loan. With some loans being financed for terms as long as 96 months , the effect of rising interest rates and the practice of rolling-over an existing loan into a new one could result in an unfortunate situation that would negatively affect your personal financial health. And all for a new car.
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Your Current Finance Company
It’s worth calling the company who owns your current auto loan to see if you’re eligible to refinance your current car loan for a lower interest rate. Paying less in interest will help you to bridge the gap between what you owe and what the car is worth on the market. In some cases, the company may allow you to extend the loan terms for an additional year which would lower your payment as well. Negotiating the terms to that happy place where you’d be paying more on your principle than you are in interest will help mitigate the upside down loan effect.
Consider Refinancing The Loan
If your credit score wasn’t in the best shape when you first took out the loan, a good chunk of your monthly payments may be going toward interest charges. If your credit has improved since then, you may consider refinancing the loan to obtain a lower interest rate. Then, you can continue to send the original loan payment amount to the lender and pay off the debt faster.
Switching to a shorter repayment period is another way to pay down the loan faster. Just make sure you can afford the new, higher monthly payment.
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Upside Down Car Loan Here Are Some Options
Weve all been there. You wake up and decide you want to trade in your old car for a new one with the latest technology. You do your research, go to the dealership and prepare to drive off into the sunset only to be told the trade-in value of your vehicle is only a fraction of what you still owe on it. This is called negative equity and it is a common affliction in America today. If you find yourself in this situation, dont panic –you are not alone! As of 2017, 32.5% of all vehicles that were traded-in had negative equity and the number has likely grown in the last three years. Here are some options for you to explore if youre upside down on your loan.
What It Means To Be Upside
Being upside-down on your car loan simply means you owe more than the car is worth. Its sometimes called being underwater on the loan.
So, if your cars worth $10,000 but your loan balance is $12,000, then youre $2,000 upside-down. If you want to get rid of your car, youll not only have to sell or trade it in, but youll also have to pay the lender $2,000. This is also known as having negative equity.
However, if you have positive equity you owe less than your cars value your car becomes an asset, giving you more financial flexibility in life. For example, with $2,000 in equity, you could trade in your current car and have $2,000 as a down payment on a different one.
Keep in mind that determining the value of your car isnt an exact science. The value also depends on whether you trade in or sell to a private party buyer.
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Car Loan Upside Down 5 Options When Youve Got Negative Equity
You owe more on your auto loan than the value of the car itself. Now what?
That new car smell, fancy leather seats, blind spot cameras theres a lot to love about getting a new set of wheels. Except, perhaps, the price tag. According to Kelley Blue Book s most recent data , the average price of a new vehicle is $38,948.
If youve purchased a new vehicle recently, chances are you took out a loan to pay for it. About 85% of new cars are financed with a loan or lease. Auto loans themselves arent a problem dealerships, banks, and credit unions often offer competitive rates and other incentives, making car payments more affordable.
What can be a problem is depreciation, the reduction in your cars value over time due to age, wear and tear, and other factors. In fact, in the first 12 months alone, your brand new car loses about 20% of its value.
| How Much Value Do Vehicles Lose Over Time? |
| Year 1 |
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Refinancing Your Upside Down Auto Loan
If you have been suckered into a car loan in which you owe more money to the lender than the car you bought with the loan is worth, otherwise known as an upside down car loan, a good way to get yourself out of this hole is to refinance your upside down auto loan. Many new car buyers each year are mislead by auto loan companies that try to take advantage of them by getting them to take out a loan that has a high percentage rate. Your auto loan can also go upside down if your car suddenly depreciates in value, such that if you sold it, you wouldn’t be able to pay off your loan. To lower the total amount of money you will have to pay for your loan, you can take out a loan from another insurance company that has a lower interest rate to pay off your original loan all at once. This is called refinancing a car loan. The following is a guide that will help you apply for a loan to refinance your upside down car loan.
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How To Trade In A Car With Negative Equity: 3 Options
When you consider that a new car can lose 20% or more of its value within the first year, its easy to see how you could wind up owing more than your car is worth.. If the amount you owe on your auto loan exceeds the value of your vehicle, you have whats known as negative equity.This is also referred to as being upside down on your car loan.
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Getting Upside Down On A Car Loan
To understand how to get out of trouble, you first need to understand how you got upside down on a car loan in the first place.
- A car depreciates in value very quickly, especially in your first three years of owning it. When you buy a car with a low down payment or no down payment at all you immediately owe nearly the entire purchase price, but its already worth less. For example, if you buy a $20,000 car and only put a thousand dollars down, youll be upside down as soon as you drive the car off the lot. You owe $19,000, but the car is only worth $16,000.
- Its easy to overpay if you dont do your research before buying a car. Your overpayment doesnt make the car worth any more in the fair market, so if you pay $24,000 for a car thats now worth $16,000 youre upside down and already facing a big problem.
- Its not always your fault. When an unscrupulous car dealer takes advantage of you, you can end up owing more than you should.
- When you add too many frivolous options to your car, you increase your final total, but not the value of the car. Thats a recipe for being upside down even faster.
- If youre already upside down on one car loan and you try to get a new loan, dealers will often roll the shortfall from the old car to the new car without even telling you.
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How Do I Avoid Being Upside Down On A Car Loan
Theres different ways to avoid being upside down on a car loan. Heres some ideas to keep in mind for when youre shopping for your next vehicle and want to avoid being upside down.
Finding youre upside down on a loan is never a fun thing, especially when you dont have hundreds or thousands to spare. Remember these tips when going to pick out your next car, so you can avoid being upside down on your next auto loan.
Key Takeaways On How To Get Out Of An Upside Down Car Loan
Being underwater is never fun. If you have an upside down car loan, its important to act fast, so you dont fall further into debt. While your car begins to depreciate, your loan and its interest rate will still be there. From refinancing your car to selling it, these tips on how to get out of an upside down car loan will help you stay afloat and build equity in your vehicle.
Save more, spend smarter, and make your money go further
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The Dealer Is Not Your Friend
Whatever you do, avoid the temptation to throw yourself on the dealers mercy. Chances are, theyll roll the negative equity into a new loan and youll be in worse shape than before. Instead, take control of the situation yourself and do whats right for you now and in the long run.
About the author:Philip Reed is an automotive expert who writes a syndicated column forNerdWallet that has been carried by USA Today, Yahoo Finance and others. He is the author of 10 books.Read more
What It Means To Be Upside Down On A Car Loan & How To Avoid It
Thinking its about time to trade in your car? Before getting all excited about a new ride, you might want to consider how much this trade in will end up costing you. If youre lucky or have done your research you wont be upside down on your loan and making your transition into a new auto loan will be pretty easy, but what happens if youre upside down? Heres what you need to know about being upside down on auto loans:
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What To Do When Youre Upside
NewsOK.com RSS – business > > !The Oklahoman, Daily Oklahoman: BusinessFri, 05/19/2017 – 9:13am
When you owe more than your vehicle is worth, you are upside-down, or underwater, on your car loan. This doesnt immediately spell trouble, but it can result in less financial flexibility and security.You face two major risks: If you get into an accident, your insurance will generally cover the damage only up to the value of the car not how much you owe and, if your situation changes and you need to sell your car, youll do so at a loss. The difference between the cars value and the loan amount is your negative equity.Best options if youre upside-downDrive through the loanIf you can, the best move is to simply keep your car and finish the payments until you either own it outright or youre back to owing what the car is worth .If youre concerned about insurance coverage in the meantime, you can purchase gap insurance, which covers the difference between the value of a car and what you owe on the vehicle in the event that its totaled.Read more on NewsOK.com
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