Every year several Americans find themselves in a situation where they owe more on their car loan than the value of the car itself. If you find yourself ‘underwater’ there’s still hope. Here are a few tips to consider to get yourself out of an upside-down car loan.
Understand Your Negative Equity
Use all available research resources to estimate the value of your car. Once you have arrived at this figure, subtract this value from the amount you owe on your loan to get your negative equity value.
Assess Your Finances
It is common to see people in this situation decide to continue making payments while losing equity. If you have the finances available paying off the negative value in a lump sum may be your best bet. Using this option can reduce the length and cost of your loan
Contact Your Lender
If you don’t have surplus cash to cover the entire negative equity, ask your lender about other repayment options. Some lenders will allow you to increase your monthly principal payment which leads to ending the loan faster. This option is worth considering if you can still manage your monthly expenses without increasing your current debt.
Look at Refinancing
Consider signing up for another loan to pay off the underwater car loan. This is ideal if you have a good credit score as the interest rates for the new loan will be lower. Opt for a short term loan as the value of your car will depreciate fast as the years go by. Refinancing allows you to lose less money in the long run as long as you make timely payments.
Sell Your Car
A final resort to get out of the loan is to sell your car while aiming to get the highest price. Spending a little money on making sure the car is mechanically fit and looks good can drastically increase its value. While fetching a high price may lower your negative equity value, you will still have to pay off the balance out of pocket.
Now that you have all your options laid out, getting out of an upside-down loan is just a matter of choosing which option works for you.