How to Deal With an Upside Down Auto Loan
It has happened to the best of us. You buy a brand new vehicle and as soon as you drive it off the lot the value drops like a rock. In most cases, this drop causes us to have an upside down auto loan. It may seem that as each monthly payment passes, the car value keeps dropping faster than your loan amount. Below is a list of what you can do about an upside down car loan...
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Sell and Absorb: If you can locate a car of lesser value and trade in your current car, you can have the dealer tack on the additional amount that you are upside down onto the sale price of your new car. You may have to bite the bullet and buy a car that is used and of much lower value. In other words, you if you have a car that is worth $20,000 and you owe $24,000 on it then you can purchase a $5,000 car and add the $4,000 difference onto the difference. By doing this, you should lower your monthly payments immensely - since you will only be paying on a $9,000 loan rather than a $24,000 loan. It would be better to choose this option than to default on your original loan.
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Payment and a Half: Getting out of an upside down car is tough, one thing you can do is to make a payment and a half each month. This should allow you to gain some ground on the actual value of your car. Even adding an extra $200 a month on your payment can really add up when it comes to lowering the principal amount of your loan.
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Determine the Damage: First call your lender and find out the payoff amount on your vehicle. Next visit Kelly Blue Book's website and determine the value of your vehicle. Subtract the value of your vehicle from your payoff amount and you will know roughly how much you are upside down.
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