How Can I Get Out of a Car With Negative Equity?
Have you valued your trade-in and discovered that the car is worth less than what still owe on the loan? If so, this means that your car has negative equity, which is also known as your loan being upside-down. Drivers often want to know what the term “upside-down” when it comes to cars means. In short: your car loan is declared as an “upside-down car loan” when it’s higher than what the vehicle is worth. For instance, if your car is worth $11,000 but you still owe $13,000, the loan is upside down.
If you’re currently in this predicament, you may be wondering, “How can I get out of a car with negative equity?” Read this guide by the finance experts at Pride Chevrolet, Inc. on what you can do to get out of an upside-down car loan.
How to Get Out of an Upside-Down Car Loan
Revere 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’re looking to get out of your Saugus-commuter vehicle that has negative equity, the best option is to continue to make payments on your loan until you either pay it off, or the loan amount is lower than the car’s value. While this route can be time-consuming, it’s a great way to garner equity in the vehicle if you decide to sell it.
- Pay Extra Money on Your Loan Each Month: Putting more money towards the loan’s principal each month allows you to pay off the loan and build equity quicker. However, you’ll want to make sure beforehand that you won’t be charged for paying off the loan early.
- Refinance the Upside-Down Car Loan: Have interest rates dropped since you took out the original loan? If so, refinancing might be a good option for you. Refinancing allows Chelsea drivers to pay off their car loans faster, thus resulting in gaining some equity. While large bank lenders may be apprehensive about refinancing, you might have luck with a smaller, community bank or credit union.
- Sell Your Upside-Down Car: If you’re eager to get rid of your car, another option is to sell it privately as opposed to trading it in at a dealership. Private car sales can typically make sellers more money than trade-ins. Although, it’s important to keep in mind that if there’s still a difference between the price the car is sold for and how much you owe on it, you will need to come out of your own pocket to make up the difference.
- 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 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 your local Everett-area dealership, be sure to research all of the potential costs so that you’re financially prepared. The last thing you want to do is to be upside-down in your loan when you drive off of the lot. You can also browse sites such as Kelley Blue Book to find the car’s true value so you won’t overpay for the vehicle.
- Find a Model That Fits Within Your Budget: While it may be tempting to take home a shiny-new Chevrolet, sometimes the best financial option is to choose a late-model pre-owned vehicle.
- Choose a Short Repayment Plan: If you can afford it, choose the shortest repayment plan possible. A shorter repayment plan means that you can pay the loan off faster and that you’ll have lower interest rates.
- Make at least a 20% Down Payment: Making a down payment that’s at least 20% of the car’s cost will cover the 20% depreciation that occurs when you take the car home.
- Considering Leasing Rather Than Financing: Drivers who don’t plan on keeping their vehicle for a long period of time would do well to consider leasing it as opposed to financing it. Leasing a car means that you won’t have a loan, and thus you can’t become upside down.
Can I Trade In a Car With Negative Equity?
If you’re interested in trading in your upside-down car, some dealerships will offer to pay off the loan for you. Sounds too good to be true? It’s because it is. While the dealer will pay for this loan upfront, this balance will get added to the loan of the new vehicle. Otherwise known as a “rolling over your loan,” you’ll be paying for old and new loans simultaneously.
Learn More Car Buying Tips From Pride Chevrolet, Inc.
Now that you know what the term upside-down when it comes to cars means if you’d like any additional car buying tips, contact us today! Here at Pride Chevrolet, Inc., we’re always here to help drivers from Lynn and the surrounding areas get behind the wheel of their dream car for a great price.
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