A car loan is “upside down” when the amount that you owe on the loan is more than the dollar amount of the car. There is a way to help yourself out of a bad upside down car loan situation. By following a few steps and keeping in mind a handful of helpful tips, you can attempt to get out of an upside down loan.
Valuate Your Vehicle
The first step in getting out of an upside down loan is determining the current fair market value of your car. One of the primary reasons people end up drowning in their loans is that they do not accurately account for the expedited depreciation of cars compared to other property equity. Be honest with yourself, and whatever valuation tool you utilize, about the condition of your car to determine the current resale value.
Pay-Off Balance
Contact the bank or other lender in charge of your loan to get an updated pay-off balance. Comparing the amount you need to pay back to the accurate market value you determined will let you know how much money you need to have after selling your car and how badly underwater you are with the loan.
New Loan
You will need to pay off the difference between your current car loan and what you can sell the vehicle for before transferring ownership to the buyer. Most people will not have several thousand dollars in spendable cash with which to accomplish this, and a new personal finance loan can be the best way to gather the funds. Consider applying for the loan with the same lender that financed your car loan. Since the initial lender is already in control of the debt you plan on paying back with the new loan funding, they are more likely to work with you toward approval.
Sell Your Car
Once you have the money you need to cover what the value of your car won’t, it is time to sell your current vehicle. Clean and detail your car thoroughly. A car that appears to be in good condition will sell faster than one that seems neglected. Place ads and make sure you are well informed on your vehicle’s specifications. Draft a bill of sale to provide to the buyer, and be prepared to immediately cancel or transfer your insurance once the sale is complete.
An upside down loan can feel overwhelming and impossible to get out of. By taking an honest and realistic look at the value of the car and ways you can pay off the loan without taking too much of a loss, you can work toward settling an upside down car loan.
*Image courtesy of freedigitalphotos.net
