An upside-down car loan can cause a significant amount of stress, especially if you’re already struggling with your finances, but it is more common than you think. It often occurs due to negative equity, meaning you owe more money to your lender than your car’s worth. Fortunately, there are some ways you can get out of it. Let’s discuss.
Downsize Your Car
While the option is not so ideal, it’s worth considering if you want to get out of a negative equity situation. Trading your car for a used or a more affordable option will help you save money you can use to pay the negative equity.
Refinance Your Car
Sometimes, an upside-down loan can mean a high-interest rate. However, by auto refinancing, you can get yourself a better deal to eventually get you out of the negative equity.
Moreover, if you have improved your credit score recently, auto refinance is a very credible option. It works by giving you a lower interest rate so you can save up more money and use it to pay the loan off.
After a car refinance, one of the best ways to get rid of an upside-down loan is by making extra payments. This option is only eligible for those who have enough funds to pay the principal loan. This way, the interest reduces over the life of your loan. However, make sure to check if there is a prepayment penalty on your loan, as it can wipe out your savings.
Sell It Privately
Instead of selling your car through a dealership, do it privately as it may get you a better deal. There are several online platforms you can explore to put your car up for sale. By selling the car for good value, you can cover the amount you owe on it.
Sometimes, a loan is accompanied by add-ons such as service contracts, GAP (guaranteed asset protection), and extended warranties. Even though the services are offered overtime, you can cancel them and apply for a refund. By doing so, you can use the refund money to pay off the auto loan.
While there are several ways to go about it, the most practical way to deal with an upside-down loan is through a car refinance. Not only will it allow you to get better loan terms, but it will also help you save up by reducing the interest rate.