What to Do if You're Upside Down on a Car Loan

Having an upside-down car loan means you owe more than your car is worth. Negative equity doesn't affect people who plan to keep their vehicles. However, if you want to trade in your present car for a new one, having an upside-down car loan can cost you money. Fortunately, there are ways to get rid of this problem.

Instructions

1. Pay extra money each month. If you currently owe more than your vehicle is worth, consider putting extra money towards your car payment each month. An extra $50 or $100 can make a huge difference, and it'll help pay down the negative equity.

2. Get gap insurance. Unfortunately, if you get into an auto accident with an upside down car loan, and the insurance company considers the car a total loss, you'll have to pay the difference out-of-pocket. The insurance company will pay your finance company what they deem the car is worth. However, if you owe more on the vehicle, the finance company will come after you for the difference. Gap insurance can pay the difference and alleviate this headache.

3. Keep the car and pay it off. Buying a new vehicle is enticing. However, if you have negative equity, it may be a good idea to keep the car until it's paid off. You can trade in the car for a new one, but the auto lender will attach the negative equity to your new car loan, which can inflate your purchase price and monthly payment.

4. Sell the car. One way to get around an upside-down car loan is to sell the car yourself. Rather than trade in the vehicle and lose money, place a classified ad in the newspaper and attempt to sell the car for the exact amount owed on the loan. Find a willing buyer, and you can pay off the car and get rid of the negative equity.

5. Refinance and shorten your auto loan term. If you currently have a four or five year auto loan term, consider a refinance to decrease the loan term. This will increase your monthly payments. However, it'll also help you get rid of negative equity and get from under an upside down car loan.