How to Get Out of an Upside Down Car Loan

Making a lump sum payment is the easiest way to get out of an upside down car loan. You can also talk to your lender to adjust the loan terms and get out faster. Read this guide to learn more.
Written by Jason Tushinski
Reviewed by Kathleen Flear
When you’re upside down on a car loan, the amount you owe on your loan is more than the vehicle is worth. Making a lump sum payment is the easiest way to get out of an upside down car loan.
Of course, this is not the only way get right side up on a car loan. You can keep making loan payments, but you’ll still be losing equity on it. Or, you can sell the car and absorb the financial loss that comes with it.
These may not be the most appealing options, but they can help free yourself from an unwanted vehicle.
Being stuck paying more than your car is worth can be a confusing and frustrating situation, that’s why the
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How to know if you're upside down on a loan

Calculate your negative equity

You’ll need to know how upside down you are on your loan, and you find out by calculating your negative equity. Simply subtract the estimated value of your car from the amount you owe on it.
For instance, if you do some research and learn your car’s value is $10,000, but you still owe $13,000 on your loan, that means you are $3000 upside down. In other words, you’re holding $3000 in negative equity.
To find out how much your car is worth, check a few trusted resources.
Kelley’s Blue Book
, and the
National Automobile Dealers Association Guides
are all reliable sources for getting a good idea of your car’s current market value.
Key Takeaway
Subtract your car’s current value from the amount you owe on your loan to determine how far upside down you are on that loan.

Methods to get out of an upside down car loan

1. Pay off loan with a lump sum

Once you’ve calculated your negative equity, determine if using a lump sum to pay off your underwater loan is possible.
If you can pay the loan off without taking on any extra debt or putting your other assets at risk, this is your best option to rid yourself of that upside down car loan.

2. Talk to your lender

Don’t fret if paying off an upside down car loan with a lump sum is not an option for you. Talk to your lender and inquire if they can help you turn that upside down loan around.
If you can afford it, your lender may be able to adjust your loan’s terms and allow you to pay more each month towards the loan.
This will help you pay the loan off faster while ensuring you’ve still got a car to drive. This option may be painful in the short term, but it's a way out from an underwater loan.

3. Get a new loan

If your lender won’t adjust your current upside down loan, refinancing with a lower interest rate may be an option.
Keep in mind, you’ll need good credit in order to qualify for a refinanced loan with a lower
interest rate
A refinanced Jerry Car Loan on a shorter term will allow you to pay the loan off faster, even if you’re paying a bit more per month. You’ll want to pay the car off as quickly as possible as cars rapidly lose value.
Beware of a lender offering you a refinanced loan with a longer term and lower monthly payments.
This may be appealing at first, but don’t fall for it; you’ll likely pay a high interest rate on this longer-term loan, while the car you’re trying to get rid of will keep depreciating. This will only increase your negative equity in the vehicle.
Key Takeaway
If you’re trying to get out of an upside down loan, be wary if a lender offers you a longer term with lower monthly payments. This will only increase your negative equity in the vehicle.

4. Sell the car

If none of the above are options for you, you may have to ditch the car. No, we don’t mean in the Hudson River (please don’t do that).
At this point, if you can’t catch up to your car’s runaway depreciation, a private sale might be your best bet to recoup some value and use the proceeds to pay down an upside down loan.
If you sell, try to get as much money from the sale in order to cover more of the remaining loan balance. If you can afford it, give the car a good clean and detailing to boost its sale price.
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5. Trade-in

If you can’t find a buyer for your car, a trade-in is also a possibility.
though, you are unlikely to get as much from a trade-in as from a private sale.
Even if you trade your car in for a new ride, you’ll still be on the hook for the upside down loan’s remaining balance. This balance can be rolled onto your trade-in’s loan, but this puts you in danger of going underwater again.
You could also trade in your current car for a leased car. The remaining balance on your underwater loan will be tacked onto your new loan, and you’ll still be responsible for any negative equity you’ve built up.
But a leased car goes right back to the dealer when the lease is up. You won’t have to deal with any resale value-related headaches.

How to avoid going upside down

Once you get out from an upside down loan, take some proactive steps to ensure it doesn’t happen again.

1. Pick a car with better value

Do your research when it comes to cars within your budget. Look at brands and models that tend to age better and lose less of their value compared to other cars.
A vehicle that depreciates at a slower pace will help you build equity.

2. Make a down payment

Remember, the bigger the down payment you are able to put down, the less you’ll owe on the remainder of the loan. If you can afford it, put 20% down on a new car to help offset the 20% depreciation new cars typically suffer in their first year of use.

3. Choose a loan based on term

Choose your loan based on how long you think you’ll keep the car, even if you have to pay more per month. Hopefully, this will help you avoid what we’ve been talking about — ending up with a car that’s worth less than what you owe on your loan.

4. Buy a used car

A used car may not have the pizzazz of a new car, but you may save a bundle in the long run. Nowadays, you can easily find a good quality used car. They don’t depreciate nearly as quickly in value as new cars do, making it easier to stay right side up on your loan.

Car loan comparison tool

You deserve a loan package that works for your budget and the confidence that you’re getting the best deal on your auto loan refinance.
There’s just one way to get both:
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Dealing with an upside down loan

Freeing yourself from an upside down car loan isn’t the most pleasant thing to do, but it is doable.
Whether you ride things out with a car on an upside down loan, or manage to get out from it and into a new car, you’ll need
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Frequently asked questions

What’s the fastest way to get out from under an upside loan?

Without a doubt, paying off what you owe with a lump sum is definitely the easiest way to escape an upside down loan. It may hurt to part with your hard-earned cash, but if you can afford it, this is the quickest solution.

What if my lender won’t adjust the terms of my upside down loan?

While not ideal, you can always ask if they will refinance your car loan, so long as you’ve got good credit. With a new loan and a shorter term, you’ll be able to pay the loan off faster, even if the monthly payments are higher.
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