How to Get Right Side Up With Upside Down Car Loans
Upside down car loans causing you to feel upside down face? Yep. We know the feeling.
When you owe more on your car loan than the car is actually worth (“upside down” on your loan), you have negative equity. You owe more money on your car than the actual worth of the car – which can spell out big trouble for you. Unlike a house, a car doesn’t grow in value over time. It depreciates in value, no longer an asset or investment, but an expense.
So how did you get here? And, aside from wrapping yourself up tightly in a blanket to smother the panic, what can do you?
What causes an upside down loan?
People can find themselves in this situation due to a variety of factors. First, you immediately lose 20% (or more) of your car’s value when you drive it out of the dealership. That, combined with dealer incentives, small down payments, and rollover loans (where lenders add the negative equity left over from previous car loans), explains why over 50% of people who purchase new vehicles are already in debt with their cars before they even leave the lot.
How do I get out of an upside down loan?
If you do find yourself in this situation, there’s a few things you could do to get…right side up (eh? Eh). For one, you can keep the car and continue paying off the loan until it’s lower than the value of the car itself. You can also pay a larger amount each month towards the loan principal, or find a loan with a shorter payment term if it’s within your budget, which would help you reduce the loan amount faster while simultaneously building equity at a faster rate. Alternatively, if you are looking to sell your car and just call it a day, consider selling it privately instead of trading through the dealership. This way, you’ll be able to profit. If, at the end of the day, all these still won’t work because you are in too much debt, there are helpful solutions such as debt consolidation or debt settlement that can relieve the burden.
How to avoid an upside down car loan
Since nobody likes being in debt, and nobody really likes being upside down for that long (unless on a roller coaster), here are a few tips to help you avoid any future upside down car loans:
1. Choose a shorter repayment plan – lower interest rates and a shorter payment period
2. Make a 20% (at least) down payment when you purchase the car. This way you will be negating the 20% depreciation when you drive the car off the lot.
3. Do your research before you commit and purchase to get a sense of the true value of the car.
4. Ask about cash incentives from dealers.
5. Consider leasing instead of buying.
At BC Drive, we know how hard it is to find a car with bad credit, that also matches your lifestyle while not leaving you wondering how you’ll be able to make rent, much less put food on your table. That’s why we work to find you the very best financing options out there, with $0 down, bad credit or no credit. Because you deserve the best, and we give that to you.