What does being upside down on a car loan mean?

I took out a car loan less than a year ago, and I’ve been paying it off without any problems. But the lender sent me a somewhat confusing letter stating I have negative equity and that the loan is upside down. What is an upside-down car loan?

Being upside down on a car loan means you owe more than your car is worth. This is equivalent to having negative equity in the vehicle, which is not an advantageous situation.
Fortunately, having an upside-down loan isn’t the end of the world—as long as you’re not looking to sell or trade in your car anytime soon. Keep making on-time payments, and you’ll eventually be out from under the loan.
To correct the situation sooner rather than later:
  • You can make extra payments. By making more payments, you lower the loan’s remaining balance and are one step closer to having positive equity in the vehicle.
  • You can refinance the loan. Refinancing into a new loan with a lower APR will make it easier to pay off the balance—although finding a lender who will refinance an upside-down loan could be challenging.
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Jack Walsh
Answered on Dec 09, 2021
Jack is an insurance specialist and writer living in Buffalo, New York. He has a BA from Union College and worked as an insurance agent with Jerry before joining our content team. He enjoys using data and research to break down complex subjects and convey a story. In his spare time, Jack enjoys cycling, cooking, and exploring Buffalo’s beautiful waterfront.

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