How to Get Out of an Upside-Down Car Loan

Have you been looking around Massillon to value your trade with your old car? Suddenly, you’re told the vehicle no longer retains the same value, and you owe an upside-down car loan. An upside-down car loan means the amount you still have to pay back is higher than the car’s value.

How do you escape negative equity? The financial experts at Spitzer Chevrolet North Canton have a few recommendations on how to get out of an upside-down car loan.

How to Get Out of an Upside-Down Car Loan

Louisville drivers who find themselves in an upside-down car loan have a few options available to them:

Continue to Make Payments on the Vehicle: If you want to escape from a car with negative equity, the best choice is to keep making payments on your loan until you have either completely paid it off or the loan amount is less than the car’s value. Although this method may take time, it’s an excellent way to build equity in the vehicle if you later choose to sell it.

Pay Extra Money on Your Loan Each Month: Paying a higher amount towards the loan’s principal every month helps pay off the loan faster and accumulate equity. Before doing so, ensure no penalties for early loan repayment.

Refinance the Upside-Down Car Loan: Since you obtained the original loan, have the interest rates decreased? If they have, refinancing could be a beneficial choice for you. Refinancing enables individuals to repay their car loans more quickly, leading to the accumulation of equity. Although major bank lenders may have concerns about refinancing, you may find success with a smaller, local bank or credit union.

Sell Your Upside-Down Car: Selling your car privately instead of trading it in at a dealership can be a more profitable option. Typically, private car sales yield higher returns than trade-ins. However, it’s crucial to remember that if the selling price doesn’t cover the amount you still owe on the car, you’ll have to make up the difference from your own pocket.

Take Out a Loan to Cover the Negative Equity: One alternative method for escaping an underwater car loan involves selling the car and obtaining a new loan to offset the remaining negative equity.

How Can I Avoid an Upside-Down Car Loan?

If you currently own a car or you’re browsing the market for your dream car, here are some ways to be proactive and avoid an upside-down car loan:

Do Your Research: Before visiting us, be sure to research all the potential costs to prepare you financially. The last thing you want to do is be upside-down in your loan when driving off the lot. You can also browse sites such as Kelley Blue Book to find the car’s true value so you won’t overpay.

Find a Model That Fits Within Your Budget: Opting for a late-model pre-owned vehicle can sometimes be the best financial choice, even though bringing home a shiny new car might be tempting.

Choose a Short Repayment Plan: Choose the shortest repayment plan possible if you can afford it. A shorter repayment plan means you can pay the loan off faster and have lower interest rates.

Make at least a 20% Down Payment: Paying a down payment equivalent to 20% of the car’s price will offset the 20% decrease in value that happens once you drive the car off the lot.

Considering Leasing Rather Than Financing: Considering leasing instead of financing would benefit drivers who don’t intend to keep their vehicle for an extended period. Opting for a lease means avoiding a loan, which prevents the possibility of being in a negative equity situation.

Can You Trade In an Upside Down Car?

If you’re looking to trade in your vehicle but still have an outstanding balance, our finance team at Spitzer Chevrolet North Canton can typically incorporate that remaining balance into your new vehicle loan. Visit us for more information about this possibility.

Learn More Car-Buying Tips from Spitzer

Now that you know what the term upside-down in cars means, contact us today if you’d like any additional car-buying tips! Here at Spitzer Chevrolet North Canton, we’re always here to help drivers from Massillon and the surrounding areas get behind the wheel of their dream car for a great price.