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What does having an upside-down car loan mean?

I’ve been shopping around for a new car. When I mentioned it to my dad, he told me I should make a large down payment to avoid having an upside-down car loan when I leave the lot. I agreed and kept the conversation moving… but I have no idea what that means. What’s an upside-down car loan?

avatar
Jack Walsh · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
Having an
upside-down car loan
means you have negative equity in the vehicle. Put simply, you owe more than your car is worth.
Cars depreciate as soon as they leave the lot. So your dad is right—making a sizeable
down payment
of at least 20% can help prevent the loan from going upside down.
You can also avoid the situation by:
  • Choosing a car that holds value
  • Choosing a shorter loan term
  • Avoiding unnecessary add-ons
  • Buying a used car
  • Shopping around to find a lender offering a low
    APR
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