How do you deal with an upside-down car loan?

How do I deal with having an upside-down car loan? I want to keep my car, but I’ll have to be upside-down on the loan for a while and that makes me nervous. Is there a way to get back on top of my loan?

Answer
Being upside-down in a car loan is a stressful situation, so it makes sense you’re nervous. To get back on top of your loan, you’ll need to find your negative equity. Once you find your car’s actual cash value through a site like Kelley Blue Book or Edmunds, you can subtract it from your loan amount. If the cost of your loan is more than the value of your car, this difference is your negative equity.
Once you know how much negative equity you’re working with, you can do one of a few things:
  • Talk to your lender. Often, lenders are willing to work with you. Ask if you can adjust the terms of your loan to pay more each month. That way, you’ll pay off your loan more quickly!
  • Refinance your car. If you’re not able to adjust the terms of your current loan, it might be a good idea to find a new one. Refinancing your car could get you a better interest rate, or you could opt for a shorter repayment period to pay off your loan more quickly.
  • Pay off the loan. If you’re financially able to pay off the remaining balance on your loan, this is your best bet. This option requires a little more financial burden on your part, but it is the best way to get out from under a car loan.
  • Sell your car. While this might not be an ideal solution, it can be helpful when you’re struggling with your car loan. Once you sell your car, you can use the funds to pay off your loan, then find a new loan for a cheaper car with more reasonable monthly payments.
  • Get gap insurance. Gap insurance pays the difference between your car’s actual cash value and your loan amount, should you be upside-down and your car is totaled. Many car insurance companies offer gap insurance, so it’s worth considering.
If your financial situation has changed since you took out your last auto loan, it may be time to refinance. Download Jerry to see if refinancing your car loan can save you hundreds of dollars per month.
Liz Jenson
Answered on Dec 08, 2021
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