How Can I Buy a Car With an Already Upside-Down Car Loan?

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You might still be able to obtain another car loan even if you're upside-down in your current car loan, meaning you owe more than the car's worth. You might have to provide a down payment covering your negative equity. Otherwise, your new car's loan value might be as high as 120 percent if you have excellent credit, which helps to cover up negative equity. If you're purchasing a new car, try to find one with rebates to help offset your negative equity and minimize your down payment amount.

  • Go over your available funds and budget. Decide how much money you can offer as a down payment for a new loan to decrease your negative equity, which a lender will likely require. If you aren't carrying over substantial money from your previous loan, you may not need a down payment at all.

  • Find a dealership who has a car you want. Allow the dealer to obtain your loan payoff amount and to appraise your vehicle. Your dealer will show you the car's total purchase price, which includes tax, your loan payoff and any state and dealer fees.

  • Tell your dealership you want to carry over the excess money from your old loan to your new loan. Many dealers work with a variety of lenders and can provide financing for you. Allow the dealer to obtain your credit application and wait for your approval or a lender's counteroffer.

  • Ask the dealership to provide you with a buyer's order if you plan to finance through an outside lender. A buyer's order lists the price breakdown and vehicle information that a lender needs to determine your loan approval. Apply for your auto loan at a lender of your choice.

  • Make arrangements to pick up your new car if you're approved for a loan with the excess loan balance included. If you are declined for the loan or receive a counteroffer, have your funds ready to provide to your dealer even if financing elsewhere, as your down payment reduces your car's purchase price.

  • Sign your loan contracts. If using a dealership for financing, you'll complete your loan paperwork with the dealership. If financing elsewhere, you'll need to sign your contracts with your lender to obtain a loan check for the dealership.

  • Pay your dealership your down payment, if required. Provide your loan check if you used an outside lender and complete the remainder of your paperwork, which includes your state motor vehicle paperwork.

Tips & Warnings

  • Purchase gap insurance if you borrow a loan that exceeds your car's value. Gap insurance pays for your car's loan if the vehicle is determined an insurance loss from theft or damage. Otherwise, your insurance payout pays only for the vehicle's market value and you're responsible for the remaining loan balance due.
  • If you have poor credit, consider using a cosigner to secure your loan. You may obtain a higher lending value this way, allowing you to carry over more money.
  • Even if you are able to carry over your previous loan's excess balance, consider the consequences of doing so. You'll remain in a negative equity position, which can cause future trade or selling issues in the future.

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