How to Get Out of an Upside Down Car Loan
1. Find out how much your car is worth
The very first step you need to take is to find out how much your car is worth. You can use sites like Kelly Blue Book or Edmunds to determine the amount of your car’s current value for free. To get an accurate valuation, be honest about the condition of your car and enter the exact mileage.
2. Get updated on the balance of the loan
Contact your local bank or loan company to find out the “payoff” balance of the loan. Then compare this figure to the estimated value price from step one. Sometimes car owners discover they’re not really upside down after all. However, if you bought a new car with nothing down, or rolled the balance of a previous car loan into your new one, the chances are high that you’re in an upside down car.
3. Move the excess car debt to a local bank or credit union
If you discover you are in fact underwater with your car loan, if you try to sell the car you’ll end up with excess debt. For example, if you owe $10,000 on the car but it’s only worth $7,500 you’ll end up with a balance of $2,500 to pay the bank before they’ll release the title to the new owner.
One of the most cost effective ways to handle this, is to take out a loan from a local bank or credit union to cover the excess debt. Local banks often have lower interest rates and you’ll have a higher chance of getting approved. This step is a lot easier if your loan is already financed through the same bank.
4. Consider alternate sources of funding for paying off the car loan
If your bank or credit union won’t budge, or your car is financed through the dealership, you’ll have to look for alternate sources of funding to cover the difference. If you have good credit, using peer-to-peer lending networks like Lending Club or Prosper could be good options.
You could also consider taking advantage of a credit card with a balance transfer offer. You might be able to get a low introductory APR of 0% for a period of 6-12 months or until the introductory period ends. This method can be risky, though, so be cautious when choosing this option.
5. Throw extra money towards the car loan
Finally, if you can’t find a buyer who wants to purchase your car or you can’t secure a way to pay the excess debt you owe on the car, you’ll need to find extra money to cover the difference. There are two ways you can do this:
Find stuff to sell
Boost your income
Selling some major items like extra furniture or jewelry might help, or you can sell electronics or other items on eBay or Craigslist to raise money. If you’d rather go the boost income route, the only answer is to get a second job or work over-time at your current job.
This doesn’t have to be anything permanent, just a temporary fix until the car loan shortage is corrected. There are even legitimate ways to make extra money from home, which might be the push you need to start your own small business or freelance career.
The remaining debt is much more manageable than the full balance of the loan, so you’ll want to get as much out of the sale of the car as you can. The balance left over is what you need to makeup by selling stuff or making extra money.
3 Responses to “How to Get Out of an Upside Down Car Loan”
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The highest depreciation happens in the first year. Buy a car that is one year old instead of new at the end of the season when the new cars come out, and you will get a better deal. Really push for a good deal, and with the internet you can research and only go into the dealership once you have whittled the price down to what you want it to be. You won’t get all the deals from the manufacturer, but you can usually twist the dealer’s arm to give you the same warranty as new especially if the year old car is “new”. Make sure you get everything in writing, including “what warranty” you are getting.
Great advice, thanks so much for sharing!
The next time I read a site, I hope that it doesnt disappoint
me as much as this one. I mean, I know it was my pick to read, but I actually thought youd have something fascinating to say.
All I hear is a group of whining about something that you could fix
if you werent too busy looking for attention.