Swim through Negative equity: Buy a car in an Upside Down Auto Loan Situation

Being able to breathe underwater would be sweet.’ - Cameron Bright

It is exciting to be able to breathe underwater, but when you actually go below the water surface, you will develop breathing issues. Similarly, when your auto loan situation is underwater, you will face myriad problems. In financial terms, being ‘underwater’ means to have negative equity on your asset such as a car. In simpler words, it is to owe more money to the lender than the actual worth of the car. It means being in an upside down auto loan situation.

How to deal with Negative Equity on your car?

Life may not be always beautiful underwater!

Negative equity occurs when you try to get out of the auto loan before it is paid off. The reason may be you bought a Sedan and now you need a SUV for transportation or you can’t afford the current monthly payments. Nowadays, people need change and variety in driving a car and so they think of buying a new car before pay off the current auto loan.

When you have unpaid balance on your current loan, the situation of upside down auto loan arises. Let us understand the reason behind negative equity in detail:

• You bought an expensive car that you could not afford because of the high monthly payments.


• You did not pay a large down payment in the first place which caused a rise in your auto loan balance. As a result, you are stuck with unaffordable monthly payments.


• You have an upside down auto loan because you are paying high rate of interest. The reason can be your bad credit score.


• Your auto loan term is too long resulting in slower repayment of the debt.


• You rolled an old auto loan into your current auto loan which led to a rise in the total debt amount.

Negative equity and Upside Down Auto Loan: Let’s swim to the shore

Accept the fact that you are upside down on your current auto loan. You will have to deal with the difference between the car’s current value and what you still owe on the auto loan. Save yourself from going underwater with these helpful tips and swim to the shore!

• The outstanding balance isn’t going away so you will have to pay the difference before buying a new car. If you cannot afford to pay now, keep making payments on your current auto loan. It will improve your upside down auto loan situation.


• You can roll over the difference into your new auto loan. When you opt for it, the balance on the current auto loan amount will be included in the new one. You will have to make higher payments if you choose the option.


• If lowering down the monthly payments is your top priority, consider refinancing your auto loan and get an extended loan term. It will provide you instant relief from high monthly payments.


• Work overtime and earn extra bucks to pay off the outstanding loan amount. Working a few additional shifts might be the easiest way to get more cash in your pocket. Also, it will help you to lower the negative equity.


• Sell your old car. You can get instant cash and it will help in repaying the current auto loan. When it is paid off, you can begin another journey with your new car and a new auto loan.

When you are driving your old car and see a new model of a car passing by, it will give you goose bumps. If you need the luxury of a latest car, you will have to consider your current outstanding auto loan balance. Before making any decision, consider how negative equity on your current car will affect your financial situation. Think about the upside down auto loan and prepare a detailed plan to tackle the plan. Only then, you will have the best chance to swim though the problem of negative equity and reach the shore.