Trading out of a used car with a negative equity car loan is possible and it can be done. By knowing your options, you may be able to get out of an upside down auto loan and gain a fresh new start.
A car drops, like a rock, in value the minute you drive it off the parking lot of the dealership. Negative equity comes from owing more on the car than what the car is worth. Typically this happens for many reasons.
Here are 3 reasons why you end up with a negative equity car loan:
Turning Around A Negative Equity Car Loan
The first thing to do is to find out your car loan payoff amount. You can find this on your monthly statement or call the financial institution you have the auto loan with.
Next, look up the value of your vehicle. This can be done with the Kelley Blue Book, the NADA Guide or Black Book. Use these 3 sources to get an average of what your vehicle is worth in today’s market place.
By taking the amount you owe on the loan and subtracting the value of your car, you will have the balance that you are upside down on. Knowing this ahead of time can better help you plan how to get out from under the loan.
You could try selling the car yourself. Usually a private sale will bring in a higher price than trading the car in. This could help you with extra cash toward the payoff of your loan.
Save for a down payment. By looking at your current monthly expenses, try to cut out something you can live with out and put this money aside in a special down payment fund. Maybe it is going out to dinner one less time per month. Another way may be to make your own coffee in the morning instead of stopping at Starbucks each morning.
Having a larger down payment may be able to help you get out from the negative equity car loan by depleting the amount of the loan that is over the value of your vehicle.
Another option would be to do some research and find a new car special that offers cash back at the time of the purchase. Many dealerships run specials that offer this type of special and this could be used to absorb the negative equity.
Some dealerships will pay off the loan and roll the negative equity in the auto loan over to your new auto loan. Of-course, this means that you will be upside down before you drive the car off the lot. In addition, this will cost you more money through the added interest for financing the balance owed on your old car.
Remember, sooner or later you will have to pay off the negative equity. Just because you keep rolling it over into your next vehicle does not mean that it magically disappears.