When you finance a car, you have to make monthly payments until the loan is paid off. When your payments become larger than the value of your car, it’s known as being an upside-down car loan— and it can be expensive and frustrating to get out of this position, especially if you don’t plan properly before signing on the dotted line.
Here are four tips for getting out of an upside-down car loan with minimal impact on your finances and time spent dealing with lenders:
1. Sell the Car
If you’re upside down on your car loan, selling it might be your best option. The money you bring in from selling your car will go towards paying off what you owe and can give you a sense of relief knowing that half (or more) of your debt is now gone. However, before you sell, make sure that the value of your vehicle outweighs its outstanding loan balance. If not, consider other options—like reaffirming or refinancing—which can help lower what you owe without totally losing everything.
2. Be Patient
Many people default on their car loans because they feel like they’re drowning in payments and don’t see a way out. If you stick with it, your lender will have no choice but to work with you if you default on your loan. Be prepared to reach out, show that you are serious about working things out, and negotiate a plan that works for everyone involved. According to Lantern by SoFi, most lenders are ready to make a deal if they know you’re serious about trying to get back into good standing with them, so don’t be afraid to be patient to work things out.
3. Consider Refinancing Your Loan
Another option for escaping an upside-down loan is refinancing the upside-down car loan. While it can seem counterintuitive to take out a new loan when you still owe on your current one, refinancing can reduce or eliminate your negative equity position. Not only that, but refinancing also allows you to convert your high-interest rate into something more affordable.
4. Pay Ahead of Time
Paying ahead of time is another way to take care of an upside-down loan. You can pay ahead on your car SCCU auto loans, even if you can’t afford to pay off all of it. If you have an extra $200 each month, consider paying it down to $175 a month or whatever you can afford. Then set up automatic payments so that those funds are automatically applied toward your car payment. The less you owe on your loan, the more money you’ll save in interest over time and could help keep things from getting worse if something comes up and prevents you from making future payments.
A lot of car buyers get into situations where they have to sell their cars, but they’re upside-down on their loan balance. Keep this guide in mind as you consider the best ways to get out of an upside-down loan.
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