Have you ever been upside down on your car loan? If so, you know how stressful it can be to continue making monthly payments without being able to pay off the balance. Luckily, there are some things you can do about it that will help get you back on track with your finances and keep your vehicle from sitting in the garage indefinitely. Here’s what you should know about upside-down car loans and how to handle them.
What Is An Upside Down Car Loan?
When you have an upside-down car loan, it means that your current car loan is larger than your vehicle’s current value. In other words, if you were to sell your car, you would owe more on your loan than you could get from selling it. According to Lantern by SoFi, “You might also hear this called being underwater on the loan.”
1. How Does This Happen? (How Do You Get Upside-Down on a Car Loan)
The typical car loan comes with a specific amount of time to pay off your car. If you don’t make all of your payments, you are at risk of being upside-down on your loan. This can happen when, for example, one month you are short on funds and do not have enough money to pay both that month’s car payment and last month’s payment.
With an upside-down car loan, there is a possibility that you may be charged with odometer fraud, which is a criminal offense in some states.
Is There A Way To Lower The Interest Rate on My Upside Down Auto Loan?
If you have an upside-down auto loan, you may be able to refinance with a lender willing to buy your upside-down car loan. But that’s not necessarily a good idea.
2. How to Get Out of an Upside-Down Car Loan
The best answer for how to get out of an upside down car loan is refinancing. If you have an upside-down car loan, refinancing is a good way to get out of it. While you still owe more on your car than what it’s worth, refinancing your loan to take advantage of lower interest rates can alleviate your financial burden. A lower interest rate will reduce your monthly payments, which may make up for any loss in equity that occurs when you refinance an upside-down loan.
Once you file for bankruptcy, it will damage your credit score. The negative information associated with your case will remain on your credit report for seven to 10 years.
3. Tips To Avoid Getting An Upside Down Auto Loan
Don’t walk into a dealership with a checkbook in hand and start asking prices on vehicles that you want to buy. The financing is where dealerships make their money, not from your initial car purchase. If you shop around for lenders and interest rates first, you can negotiate from a position of power when it comes time to talk about the price and other terms of your loan.
The easiest way to find out if refinancing your auto loan will work is to contact your current lender and ask them if they have any programs to help you get rid of an upside-down car loan.
If you’re upside down on your car loan, it can be difficult to make progress in paying off your debt. If you have questions about your loans, Lantern by SoFi is here to help.