![]() ![]() Occasionally a lender will allow you to refinance depending on your loan-to-value ratio. Often times you will be unable to refinance a car loan when you are underwater but it will depend on the lender. You can get out from under a payment you can no longer afford. You’ll have to go through a few steps and make some sacrifices to manage the loan or raise the cash, but the process is worth your time. The only real way to fix the problem of being upside down is by paying down the excess debt. How to Get Out of an Upside Down Car Loan When you’re upside down and can’t cover your loan payment, you’re in a tough financial place. The trouble comes when you can no longer comfortably afford your monthly car payment, whether it’s due to unemployment or job loss, income reduction, or another major negative change in your overall financial situation. But as long as you got a fair deal on your loan, and you make your payments on time, the expense of your loan and the value of your car eventually even out, usually in no more than five years. Sure, it’s not good news, especially if it means you overpaid. When Being Upside Down Becomes a Problemīeing upside down on your car loan doesn’t always require immediate attention. At first, it’s not necessarily a problem. That’s why many people don’t even know when it happens to them. In fact, it’s almost certain that you’re going to be upside down at some point. ![]() Unless you’re on high alert when buying a new or used car, it’s easy to fall into these traps. If you’re already upside down on one car loan and you try to get a new loan, dealers will often roll the shortfall from the old car to the new car without even telling you. ![]() That’s a recipe for being upside down even faster. When you add too many frivolous options to your car, you increase your final total, but not the value of the car.When an unscrupulous car dealer takes advantage of you, you can end up owing more than you should. Your overpayment doesn’t make the car worth any more in the fair market, so if you pay $24,000 for a car that’s now worth $16,000 you’re upside down and already facing a big problem. It’s easy to overpay if you don’t do your research before buying a car.You owe $19,000, but the car is only worth $16,000. For example, if you buy a $20,000 car and only put a thousand dollars down, you’ll be upside down as soon as you drive the car off the lot. When you buy a car with a low down payment – or no down payment at all – you immediately owe nearly the entire purchase price, but it’s already worth less. A car depreciates in value very quickly, especially in your first three years of owning it.To understand how to get out of trouble, you first need to understand how you got upside down on a car loan in the first place. How did you get here, and what can you do? Getting Upside Down on a Car Loan If you’re in this unfortunate position, you can’t lower your payment by refinancing, and selling your property won’t cover the whole loan. You can list a car as an asset on your balance sheet if you want, but in reality, it’s not an asset or an investment. When you’re upside down on a car loan, you can end up in big trouble because a car doesn’t grow in value like a house often does. In the housing industry, it’s called “negative equity.” In the automotive industry it’s called being “upside down.” In both cases, it means the same thing: You owe more money on an asset than the asset itself is worth. ![]()
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