For some, a vehicle is not a necessity. Those who live in a city with readily available public transportation can often do just fine without owning a car. But for those of us who live in rural areas or have to commute a long way to work, having wheels of our own is essential.
A car is usually one of the biggest expenses we incur, second only to our homes. But unlike a house, which usually goes up in value, automobiles lose value. And when you buy one that’s new or nearly new, it loses value very quickly.
When someone is said to be “upside down” on their car loan, it simply means that they owe more on it than the vehicle is worth. This often occurs when someone finances a new car for a term of several years. But it can also happen with used vehicles. Sometimes they lose value more quickly than you can pay the loan down, and sometimes dealers charge buyers more than the car is worth in the first place.
Finding that you’re upside down on your car loan can be quite distressing. It is particularly problematic if you need to trade vehicles for one reason or another. You might be having trouble with it or need a larger vehicle for your growing family, but if you owe more than the car is worth, you can’t just take it to a dealership and trade it in. You must pay off the loan in full before you can transfer the title.
So what can you do if you find that you’re upside down on your loan? Here are some ideas.
* Keep the car until you’ve paid the loan down to a level that’s lower than the car’s value. If you’re just hankering for something new, this isn’t so hard to do. But if you’re making repairs every way you turn, it can be difficult to wait it out. Still, you’ll have an easier time selling and getting something else if you wait until you owe less on the vehicle than it’s actually worth.
* Get a loan to cover the difference between the car’s value and the amount owed. If you go this route, you can go ahead and sell the car for what it’s worth, pay the original loan off with the proceeds from the sale and the new loan, and get on with your life.
* Sell your car to a private buyer. By doing so, you’ll get more out of it than you would if you traded it in or sold it to a car lot. You still might not get enough to pay off the loan, however, so you may end up having to borrow money to pay it off anyway.
* Many car owners who are upside down just stop making payments and let the lender repossess the vehicle. This is the worst possible choice, because it ruins your credit and you’ll still be responsible for the difference between the amount the lender sells the car for and the balance of the loan.
If you find that you’re upside down on your car loan, don’t despair. A lot of people find themselves in the same position. The best thing you can do is either keep paying until you’re no longer upside down or sell and get a new loan to pay the car off and get it off your hands. And most importantly, you can learn from your mistakes and strive to avoid such a situation in the future.
