“How do you get out of an upside down car loan?”
How do you get out of an upside down car loan when you have bad credit and no one is willing to refinance?
Submitted by Nichole B.
You have touched on a hot button for me! In the early 90s, I had a car that was so upside down my grandchildren would be paying the loan. I’d had a few years of no income while I was in school and my credit was trashed.
The fact is, there are no great options. Once there is negative equity (meaning you loan is more than the value of your car) on a vehicle, it doesn’t go away.
Option 1: Ride It Out
For the most part, you will have to tough it out until you can pay the car down enough to get rid of the negative equity. Once you pay the car down, it will be much easier to find a lender who is willing to refinance, hopefully at a lower interest rate.
Option 2: Trade in the Car
The other option would be to trade in the car for a different vehicle. This option, more often than not, can create even more negative equity (making you more upside down), so you have to be patient. Choose a car that will outlast the new loan and find a “smokin’ deal.” This is most commonly called a “rollover” and your lender may be able to lower your interest rate/ monthly payment. You’ll still be on the hook for what you owed in the previous loan because the old loan is “rolled” into the new loan.
Here’s the bright side. I found a deal on a car that I could count on for years to come. I bought that new car and my interest rate was outrageous. The price was nearly twice the amount the car would cost if I wasn’t upside down. In two years, I refinanced with a credit union (yep… you know me!) and got a great rate. I paid off that car and am still driving it today.
In the short run, that was a very painful financial situation that I turned into a good situation. My car has more than 350,000 miles on it and I haven’t paid a car note in 10 years. Financial mistakes are not fatal. Learn the lesson and make choices that are in alignment with your long term goals.
Saundra Davis is a nationally recognized financial coach and educator. Her experience in the U.S. Navy, where she made every money mistake possible, and her 20 years serving community-based organizations led her to the reality that the best way to help people find a path out of poverty is to help them become their own financial expert.