Options When Upside Down on Your Car Loan
It is quite common of new-car buyers who enter a dealer’s showroom to have a current vehicle to trade in, in which they owe more on it than what it is worth. If you owe more money on something than it is worth then it is known as “upside down.” This applies to about half of all people who purchase new cars. However, this issue did not used to be as common, in fact in the past buyers would buy a car and make payments on it until it was fully paid off. However, with an increase in incentives and long-term, low-interest loans, there has been a massive increase in the number of buyers who over extend themselves by looking for instant gratification on their cars. Due to this, more and more people are finding themselves in a situation of owing more money on their vehicle than what it’s actually worth.
Understand Your Position
If you aren’t sure that you are in the situation of having an upside-down car loan then all you need to do is look up your current vehicle’s trade-in value. Make sure that you rate your car’s condition by clicking on the “Rate it” button on the pricing page. If you find out that your trade-in value is less than what the balance of your car loan is then you are considered upside down by that amount.
Rollover Your Existing Debt Owed to a New Loan
You have the option of rolling-over your existing debt to a new loan. The largest benefit to this option is that you will be able to drive a new car out of the dealership, and possibly snag a monthly payment that is comparable. However, this option does come with some risk. You will likely need to finance another long-term loan. This means you’ll owe more money than your new car is actually worth.
Locate a New Car That Has an Incentive Amount
You also have the option of finding a new car that has an incentive amount, which will cover your existing debt. This little finance trick is great for taking care of the trade-in debt that you owe and eliminating any rollover effect. Keep in mind that those vehicles that have the most incentives will have the resale value removed from the vehicle up-front. This means that you will find these types of cars’ value lower way quicker than other cars that have no incentive, which will essentially put you upside-down at a later date.
Keep Your Current Vehicle Until the Value Catches Up
This option has the benefit of allowing you to gain enough equity to work with. This is generally the best financial choice as it will get you back on track and on top of your car payments. However, this doesn’t really satisfy most consumers’ desire for a new car. The only risk that you will face is that your car may rack up excessive damage and miles, which will reduce the value that you can barter with.
Refinance Your Current Vehicle with a Short-Term Loan
There are third-party financial companies that offer to refinance loans, which can speed up the amount of time it takes for your loan to become healthy. However, with this option you could not only risk not being able to obtain a new car, but you may also lose out of your current vehicle’s warranty coverage. Doing this will also increase your car loan payments, as you are essentially refinancing the portion of your loan that is left over of an already existing loan for a shorter amount of time.