How to Get Rid of a Bad Car or Upside Down Car Loan

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If you owe the bank for this car, you're likely under water.
If you owe the bank for this car, you're likely under water. (Image: Thinkstock/Comstock/Getty Images)

Have you ever heard someone say that his car loan is upside down? If you have, this is a bad car loan. This means that the car is not worth the money that is owed on it. Let's say that the car is worth $5,000 and $8,000 is owed. This can be due to refinancing the car, paying too much in the first place for the car, paying too much interest and other reasons. Even though this is a difficult situation to be in, you can get out of a bad car or upside down car loan.

Keep the car. This will eventually get you out of the bad loan if you keep paying. The loan amount will become less than the car's value. So just hold your horses if you can.

Sell your car at a loss. Sometimes you have to cut your losses and move on to your next venture. Get what you can for the car and relieve yourself from the stress associated with this bad car loan. This method will also help you keep or get your credit report together. Keep in mind that to sell the car you have to pay off your lender first.

Borrow enough money to pay off the car loan. Try to get a lower interest rate using collateral like a home equity line of credit. Another option is to obtain an unsecured loan from your credit union or bank. You can then take that loan amount and apply it to the balance of your bad credit loan or remaining balance after you sell the car.

Find ways to make extra money to pay it off. You can work overtime, get a part-time job or start a part-time business. Put all of the extra cash toward getting rid of that bad car debt. Use any extra money to smash this bad car debt. If you get an income tax and, bonus from work, interest from an account, inheritance or any kind of extra cash feel obligated to use it to pay off that bad car loan.

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