Having an upside down car loan is not unusual. In fact, for many loans for brand new cars, it’s perfectly normal. Not everyone is comfortable with it and we are often fielding questions about how to get out from under it.
That’s what today’s post is all about. Our Smithville auto loan team outlines a few ways you can get out from an upside down car loan.
What is an upside down car loan?
Going upside down is another term for negative equity. It describes the period of time after you buy a new car and the value of the car depreciates so it’s lower than the amount of the loan.
It doesn’t last long, has no financial impact and should not cause any financial difficulties.
You don’t have to do anything to get out from under a loan with negative equity at all. As you make payments, the amounts will even out and then provide equity as you pay more off.
If you want to accelerate that process, this is what to do.
Increase your monthly payments
If your loan allows, increasing your monthly payments can speed up the process of building equity. We usually recommend rounding up to accomplish this.
If your monthly loan payment is $350, round it up to $400 or even $500 if you can afford it. As long as you specify that the overpayment is to come off the principal and not the interest, you’ll even things out faster.
Make a lump sum overpayment
Again, if your loan allows, you can make a single lump sum overpayment to even things out. Each lender works slightly differently but you can usually contact the lender and arrange to make a card payment or bank transfer into your loan account.
Again, specify that the overpayment comes off the principal and not the interest!
Pay more often
Most auto loans are paid monthly but you can arrange with some of them to pay fortnightly or even weekly. If you are paid more frequently, this can be a useful way to overpay your loan to level things out.
It won’t work for everyone and not all lenders support it but if yours does, it’s a simple way to get back into positive equity.
Wait it out
Your final realistic option is to make peace with negative equity and wait it out. It will even out over time and you’ll be upright again within a shorter time than you might think.
Unless you’re planning to sell the car or upgrade, negative equity has no financial impact whatsoever!
If none of those options work for you and you cannot stand being upside down, your only other option is to sell the car, settle the loan and go without or buy a cheaper car. That’s not usually a realistic option which is why we left it until last!
For those of you who know that you have a challenging credit situation, please visit Dixie Auto Loans where we have a team of credit specialists ready to help you get approved for a car loan today!
For any questions or concerns, please don’t hesitate to contact us here!