6 ways to get out of an upside down car loan

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Key points

• Being upside down on your car loan means that your loan balance is more than the value of your car.
• One of the most effective ways to get out of a capsized loan is to pay off the negative principal or make extra payments.
• You can also choose to refinance your car, trade it in or sell it and pay the difference, but if you want to keep the car, you can keep making payments and driving it.

Auto loans can help you afford a vehicle you need for business or pleasure. However, having the best car loan it’s important. If not, it can quickly become a burden, especially when the loan balance is more than the value of your car. This is known as being upside down on your car loan and it can be a stressful situation. You may feel stuck with high monthly payments and a car that’s worth less than you owe. Fortunately, there are ways to get out of an auto loan mess. Here are six ways to get back on track.

Create a plan

You will need to calculate exactly how much negative capital you have. Determine the current value of your car. You can visit websites like Kelley Blue Book or Edmund’s to get a good idea. From there, you can subtract any outstanding balance on your loan to determine your negative equity. Contact your lender or log into your account online to find out how much you owe.

For example, if your car is worth $20,000 but your auto loan balance is $24,000, then you are $4,000 down. Once you have a clear understanding of the situation, you can create a plan to start making a dent in that debt. Choosing the right solution ultimately boils down to two key factors: keeping your car or money and how fast you need to get it. personal finances in order.

1. Pay the difference

If you have the money, the best thing to do is pay the difference. You can sell the car and then pay the difference between that and the amount you owe. Make sure you don’t run out of emergency savings account in the process, though.

If you don’t have the money to pay it all off, making extra payments can help you pay off the loan balance more quickly. Consider making bi-weekly payments, rounding up your monthly payment, or paying extra when you can to help dent your loan balance.

You can also increase payments made. The larger your payment, the faster you will pay off your loan. With each extra or higher payment, you reduce the amount you owe and reduce the interest that continues to accrue. However, check yours balance and make sure you can afford to make the extra payments. If you don’t, you could end up in a worse situation.

3. Refinance your car loan

Another way to get out of an auto loan mess is to refinance your loan. By refinancing your loan, you can lower your interest rate and your monthly payments. Also, if your credit score has improved, you can get a better interest rate and terms compared to what was done initially.

Refinancing comes with fees and expenses that you will need to consider. Make sure you look for the best refinancing terms and avoid extending the loan term too much, as this could lead to you paying more interest in the long run.

4. Trade in your car

If your car is still in good shape, you can trade it in for one with a lower payment. This way, you can reduce your debt while also getting a car that you can afford. However, this solution is generally not ideal. Trading your car may not get you out of a topsy-turvy auto loan entirely.

This is because the amount you owe is added to the cost of your new car, meaning you still owe the same amount of money. You can try to find a car that’s $4,000 less than it’s worth, but with today’s record-breaking prices, it might be hard to find one.

5. Sell your car

One of the easiest ways to get out of an auto loan mess is to sell the car and use the proceeds to pay off the loan. If you owe more than the car is worth, the sale price may not cover the entire loan balance.

In this case, you will have to find the difference to pay off the loan completely. While this may seem like a daunting task, it can be worth it in the long run to avoid getting stuck in a high-interest auto loan.

6. Hold the car and wait

If none of the above options work for you, you can always keep the car and wait. You can continue making payments and pay for the car. This option isn’t the most desirable but it can be the most beneficial in the long run, especially if it’s a car you want to keep.

Being upside down with an auto loan can be a stressful situation, but it’s vital to know that there are effective ways out of it. The average person buys a car every 10 years. Reversed auto loans usually happen because the down payment was too small, the interest rate too high, or you paid too much for the car. Do your research before buying a car so you don’t find yourself in this situation again. In the meantime, these solutions can help you get out of an auto loan mess. Remember, every journey begins with a single step, and taking action today can help you get closer to your financial goals.