How to Deal With Upside-Down Car Equity

Being upside down or having negative car equity simply means that you owe more on your car than it is worth. If you are upside-down on your car equity, you are not alone. As many as 40 percent of car buyers are reported to be upside down on their car, with an average negative equity of $2,200. Read on to learn how to deal with upside-down car equity.

Instructions

1. Keep your current car until it is paid off. Don't trade in your car on a new one and roll the negative equity into your new car loan. That immediately makes you upside down on the new car and just continues the cycle.

2. Save money as you can and pay extra towards your car loan. This will chip away at the negative equity. Also consider refinancing if you are at a high interest rate. Then, even though your payment goes down with the new interest rate, keep making the larger payment you are used to until you catch up.

3. Utilize rebates to pay off negative equity. If you decide to trade in your car for a new one, shop around for dealer incentives in the form of rebates. Try to find a rebate that is high enough to cover the amount you are upside down on your current car.

4. Consider gap insurance. Gap insurance pays the difference between what is owed on the car and the fair market value. Shop around to find the best bargain. While dealerships may offer the coverage, typically they will not be the cheapest.

5. Break the cycle. Once you dig out of the hole, don't let yourself get back in. Live within your means and buy cars you can afford.