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?

Answer
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
Buying a new car is exciting, but car ownership can be expensive. If you want to save money, consider using Jerry to pay less for car insurance. Jerry is an insurance comparison app that shops for low prices with over 50 different insurance companies for free.
You will get quotes in seconds, can make changes at any time, and if you ever have any questions, agents are just a text away. The average Jerry user saves $879 a year.
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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