Being upside down on a car loan can be extremely frustrating and can really take it out of you! It can also be difficult nowadays with tight credit rules, so the right steps must be taken. But what exactly is an upside car loan? It literally means that you owe more than what your car is actually worth. However, you are in luck, as there are many ways in which you can get rid of this loan. You do have to be careful on the other hand, as some methods will not work as well for others. The idea is to get rid of the upside down loan as fast and as cost-effective as possible without hurting your chances for car credit later on.
You should think about paying extra money per month, little by little. Paying a small amount of extra money each month can greatly affect the time it will take you to get out of the upside car loan, and you will see yourself coming out of negative equity in no time at all. Even an extra $20 or $40 a month will make a big difference over a few years.
Also at this time you need to get gap insurance. If you get into a car accident with the [upside down car loan], and the insurance company decides the car is a total loss – you will have to actually pay the difference out of your own pockets. The insurance company of course will pay your finance company what they believe the car is worth. But, if you owe more on the actual vehicle, the finance company will come after you for the difference. Gap insurance however will pay the difference!
You can of course simple try to keep the car and just pay it off. Buying a brand new car is definitely appealing, but if you have negative equity, it’d be ideal to keep your old car and pay the money off first. You trade it in for a new one, but the car lender will simply attach your old negative equity to your newer car loan. This can in turn increase your purchase price and your monthly payment.
Another method that is not recommended is to just stop making payments and let the car get repossessed. This is rarely, if ever, a good idea. Once you have a repossessed car your credit will get a big black mark. Then when you go to get another car you will find that getting car finance with bad credit is no easy task. Buying a car with bad credit is OK but only if you can pay cash. A few years ago credit scores were not that important but this has changed with the new credit rules. Now, if you want to buy a car with bad credit you will have to get a cosigner.
An interesting way of getting rid of an upside car loan is to actually sell the car yourself. Trading in the vehicle can lose you money! Try to sell the car for the amount you need to pay off the loan. This will get rid of the negative equity with easily and in no time at all. You can also think about refinancing your car loan to a shorter term. This however will increase your monthly payments, but it can definitely be worth it as you can then pay off your negative equity quicker.