How can I avoid being upside down on a car loan?

I want to avoid being upside down on my first car loan so that I can always sell it or refinance it if necessary. How do I do it?

Answer
The first step to avoid being upside down on a car loan starts before you even get the loan. Pre-approval is often a smart move to help you:
  • Set a budget
  • See how much interest you might pay
  • Figure out how much your monthly payments will be
Moreover, you want to get together a down payment and shop around for the best car loan rate so you minimize how long you’re upside down on the car loan.
Due to depreciation, you will likely be upside down on the car loan at some point. So to minimize this, you should attempt to pay more toward your monthly bill each month, round your payments up to the nearest $100, or make principal-only payments. By doing so, you can reduce your overall principal and shorten the length of the loan.
Another advantage of this is that you will reduce how long you have to keep full coverage car insurance on your loan, or at least give you the option of switching to liability. This is because lenders require full coverage car insurance on financed vehicles.
To help you find the best rates on car insurance, try using the number-one-rated car insurance app, Jerry. Jerry compares personalized rates from more than 50 top providers and delivers the best deals to your phone in minutes for free. The average Jerry driver saves $879 a year on car insurance!
Eric Schad
Answered on Nov 24, 2021
Eric Schad has been a freelance writer for nearly a decade, as well as an SEO specialist and editor for the past five years. Before getting behind the keyboard, he worked in the finance and music industries (the perfect combo). With a wide array of professional and personal experiences, he’s developed a knack for tone and branding across many different verticals. Away from the computer, Schad is a blues guitar shredder, crazed sports fan, and always down for a spontaneous trip anywhere around the globe.
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