Upside Down on a Loan? Here’s What to Do

So it’s time to get rid of your old vehicle and buy a new one, eh? What happens, though, if you go to the dealership for your new car, trying to offer your old as a trade-in, and the dealer comes back and tells you “Sorry, you’re upside down in your vehicle.” What then?

Being upside down in your vehicle simply means that you owe more money on it than it is worth, for example if you bought a $14,000 car a couple of years ago and now only owe $11,000, but the car’s value has depreciated to say…$8,000, then you are $3,000 upside down in your car. Now, many dealers will be more than happy to take your car for $8,000 and then just add $3,000 to the price of the new car you are buying but that’s probably not a good idea, since that $3,000 will cost you higher payments and probably higher interest rates on your new loan.

Or what if you bought a car, and then lose your job while you are still paying on it. It sure would seem good to be able to get rid of that expensive car payment and pick up a cheap clunker to save on your expenses while you look for a new job, wouldn’t it? But who is going to buy your car when it is worth less than you need to sell it for? Here are some options for helping through these two scenarios:

• Wait for it: If you’re buying and your trade-in is upside, down, the best thing to do would be to wait awhile to buy your new car, increase the payments on your old one and wait until you are no longer upside down in the vehicle.
• Trade it in for a cheaper one: So your car’s value is $10,000 but you owe $15,000? Bite the bullet and buy less car. Rather than accepting the standard $5,000 markup on whatever new car you are buying, save money by buying less car. If your car is worth $10K, then trade it in for a vehicle of much less value and the $5,000 you owe will only bring the deal up to what you were planning to pay in the first place.
• Contact your lender: If you have recently lost your job, hiding from your bank or credit union lender is a very bad idea. Talk with them, explain the situation, and you may be able to work out a deal for deferment or lower payments for your vehicle. Auto lenders want to avoid repossessing a car almost as much as you do, but if you don’t talk with them, their hands are tied.
• Use rebates and incentives: If you are buying, look into buying a vehicle that comes with loyalty rebates or other cash back incentives that you can use to offset any amount you are upside down by.