If you owe more on your car than it’s worth, you’re upside-down on your car loan. (But there are ways to get out from under that loan.) Becoming upside-down on your car can happen for a couple of reasons.
How it happens
If you buy a brand new car and finance the entire thing, you’ll be upside-down on it the minute you drive off the lot due to depreciation. This can be a big problem if you wreck the car. (Trouble in that situation can be avoided by buying gap insurance from the get-go.)
But trade-ins are another big reason people become upside-down on their car. You may have bought a car, traded it in a year or two later, and rolled the remaining balance into the new car loan. Do this once or twice, and you can end up owing a significant amount of money on a car that’s worth comparatively little. Getting out of this situation is a little trickier, but it’s not impossible.
Here’s what to do if you’re upside-down on your car loan.
If you’re upside-down on your car loan, first take these 3 steps:
- Find out the value of your car
The value of your car is what a stranger will pay for it. To find this, first go to the Kelley Blue Book site and input your car’s details. Make a note of both the private party value and the dealer trade-in value.Next, check private party listings in your area to see how asking prices there compare to what the Kelley Blue Book said. You can look online and in magazines like the Auto Trader for this information. This should give you a general idea of the value of your car.
- Find out how much you owe.
Call up your lender or check online to get an idea of the total amount that you still owe. (Some places may charge you a fee for a payoff balance, so be aware of that.) Find out how upside-down you are on the car loan.
Subtract the value of your car from the amount you owe. For example, if you owe $22,800 on your car, and it is worth approximately $9400, the difference between the two is $13,400. This is the amount that you are upside-down on your car.
Knowing those numbers gives you a starting point.
Decision time
Once you know the amount you’re upside-down on the loan, it’s time to make some some tough decisions.
You need to look at your financial situation carefully. Can you afford to continue making your current payments, on time, and still pay for your other expenses, with something left over for savings? Without taking on more debt elsewhere?
If the answer is yes…
If the answer is yes, the easiest way to get out from being upside-down is simply to hold on to your car until after you pay it off.
Resist the urge to buy a new one, no matter how appealing that may seem. Remember that car dealers do NOT have your best interests in mind. It’s common for people to end up even MORE upside-down on their next car, because their old debt gets rolled into the new car loan. That’s only delaying the inevitable, and making it even harder to get out from under the loan.
Remember also that it’s usually cheaper to make repairs — even big repairs — than it is to make years and years of very high payments. (See car repairs vs. car payments for more info on that.)
If the answer is no…
If you can’t afford to continue making your payments until the car is paid off, you have two basic choices if you don’t want the car repossessed.
Either find a way to make more money and cut expenses so that you can afford to keep the car, or find a way to sell the car to a private party.
(Remember, doing trade-ins at a dealer will usually just make the situation worse. Private parties usually pay more as well, because they don’t have to make a profit. The just want a good car.)
Selling a car you’re upside down on to a private party
In order to sell the car to a private party, you’ll need to come up with the difference between what the car sells for and what you owe on it. This is because your lender will need to be repaid in full before they will release the title for the car to the new owner.
You can do this by taking out an unsecured loan for the difference (credit unions where you actually know the loan officers are good places to check for those), by selling other items or paid-off vehicles to come up with the difference, by working extra hours, etc.
It can take a lot of work and time to get out from under a car loan that you’re upside down on it, but it’s worth it. The key is to stop the cycle. You’ll be in a lot better place financially once you’ve done so.
Getting rid of that upside down car loan that’s dragging you down will be so worth it!
FAQs
You may be able to get out of an upside-down car loan by paying it off in a lump sum or with extra payments, refinancing your car loan, selling your vehicle or surrendering it to your lender.
How to get out of a flipped car? ›
Check your windows to determine the safest exit and crawl towards it. If the integrity of the car has been sustained, the door may open freely. If not, you'll need to either roll down or break a window to create an escape route, being careful to clear away any glass shards or debris before exiting.
How to get auto loan forgiveness? ›
Auto Loan Forgiveness:Directly Contact Your Lender: The first step is to reach out to your car loan lender and explain your situation. Be honest about your disability and inability to afford the payments. Many lenders offer hardship programs or loan modifications for borrowers facing financial difficulties.
How to get out of a car loan when you owe more than its worth? ›
Take Out a Loan to Cover the Negative Equity: Another possible way to get out of an upside-down car loan is to sell the vehicle, then take out another loan to cover the negative equity.
How do I get out of a car loan that is upside down? ›
You can get out of an upside-down car loan with a number of strategies, including by making extra payments toward the loan, refinancing the loan, or selling the vehicle.
How to get out of a car with negative equity? ›
You may be wondering how to get rid of a car with negative equity. You may be able to arrange a negative equity trade-in. You also can negotiate a trade-in deal that rolls over the negative equity.
Can I trade in my car if I owe 13 000 on it? ›
In most instances, yes, you can trade in a car with a loan, and some dealers might roll your remaining balance into a new loan. But trading in your car doesn't make your loan disappear. You will still have to pay off the remaining loan balance that your trade-in amount doesn't cover.
How do you turn in a car you can't afford? ›
If you simply can't afford your car payments any longer, you could ask the dealer to agree to voluntary repossession. In this scenario, you tell the lender you can no longer make payments ask them to take the car back. You hand over the keys and you may also have to hand over money to make up the value of the loan.
What happens if I can't afford my car anymore? ›
If you've defaulted on your auto loan, the lender may choose to repossess the car. The process isn't pleasant, and it can seriously damage your credit score. If you want to avoid repossession and have no other options, you can voluntarily surrender the vehicle to your lender.
Can national debt relief help with a car loan? ›
Debt relief companies don't handle secured debt like auto loans or mortgages, but they can negotiate reduced balances on your credit card bills and other outstanding debts. That can save you money and free up more funds to pay down your car loan.
If your car is worth less than what you still owe, you have a negative equity car also known as being “upside-down” or “underwater” on your car loan. When trading in a car with negative equity, you'll have to pay the difference between the loan balance and the trade-in value. You can pay it with cash.
Does CarMax buy cars with negative equity? ›
In some cases, the negative equity can be included in your financing when you buy a CarMax car. If not, we'll calculate the difference between your pay-off and our offer to you and you can pay CarMax directly. If the amount you owe is less than $250, we will accept a personal check.
Will gap insurance cover negative equity? ›
You have a loan rollover: If you owe more on your loan than your car is worth at the time of renewal, gap insurance can help protect you against the negative equity.
How much negative equity is too much? ›
How Much Negative Equity Is Too Much on a Car? The maximum negative equity that can be transferred to your new car is around 125% . It means your loan value should not be more than 125% of your car's actual worth. If it is more than 125% then your next car's loan would not be approved.
Can a lease get rid of negative equity? ›
In essence, negative equity emerges when the outstanding debt on a vehicle exceeds its current market value. This imbalance can get rolled into a lease agreement, turning it in to a hurdle that can be cleared with much less disruption to your finances.
Can you roll over 10k in negative equity? ›
There is no set amount of negative equity that can be rolled into your next car loan. If you need another vehicle but your current one is worth less than you currently owe your lender, you may be able to roll the negative equity onto your next auto loan.
Should you pull someone out of a flipped car? ›
Because there is a possibility of a fuel leak, extract any passengers if emergency services have not arrived. Step Five: Get yourself, and any passengers, as far away from traffic as possible. The last thing you want to do after extracting yourself from the vehicle is to be struck by another motorist.
How to survive a car rollover? ›
Once the car has stopped rolling, turn off the engine. If the car is on its roof, you should plant your hands or feet on the ceiling and unbuckle your seat belt. If the door will not open, which is common after a rollover, you will need to climb out through the window.
What are the odds of surviving a rollover accident? ›
What are the chances of surviving a rollover accident? The chances of surviving a rollover accident are serious, with around one-half of people in rollover accidents ending in fatalities. Wearing a seatbelt is crucial, as nearly 4 out of 5 people killed in these crashes were not wearing seatbelt.
