Upside Down on Your Car Loan? 5 Ways to Get Out

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• About this guide: St Pete Mitsubishi is a car dealership, and we earn money when customers finance vehicles with us. We've written this guide to be accurate and useful whether or not you buy from us — including the parts that suggest waiting, saving more, or spending less. Written by St Pete Mitsubishi

Owing more on your car than it is worth puts you in a tough spot, but you don't have to take the financial hit. Whether you look into refinancing or alter your payment strategy, you can close that gap and get your auto loan back where it belongs. Find out what to do when you owe more than your car is worth here!

• Being upside down means your car's market value is lower than the loan balance that remains.
• You can break the cycle by making extra principal payments, switching to a biweekly schedule, or refinancing to lower your interest rate.
• Rolling negative equity into a new car loan should be a last resort, as it can immediately put you underwater on your next vehicle.

An upside-down car loan (aka negative equity) means your vehicle is worth less than the amount you owe the bank. This creates immediate problems if you decide to part with the vehicle. If you trade it in or get into an accident that totals the car, that unpaid balance does not just go away. You either have to pay the difference out of pocket or roll that debt into a brand-new loan, digging yourself into an even deeper hole.

If you find yourself stuck with a negative equity position, you can try these five paths to fix the problem:

Sometimes the simplest approach is to just keep making regular payments until the loan balance finally drops below the vehicle's depreciating value. While you wait for the numbers to shift, it is a smart move to add gap insurance to your policy so you do not get burned if the car gets totaled.

If you're dealing with a high interest rate, refinancing allows you to secure a lower rate so that more of your hard-earned money goes toward the principal balance every month, which will help you clear the debt faster.

You don't have to stick strictly to the bank's payment schedule. Putting extra money toward your balance whenever you have spare cash speeds up the process. You can also split your regular monthly payment in half and pay it every two weeks. This shift results in making 13 full payments a year instead of 12, which cuts down on interest and shaves months off the loan.

Selling your vehicle via a private sale will likely bring in more money than trading it in. (You'll still need to pay the loan off to clear the title, but you can shrink your ongoing interest costs.)

If you absolutely must replace the car right now and cannot pay off the negative equity, you can trade it in and let the dealer roll the remaining balance into a new loan. To make this strategy work, you must downsize to a much cheaper, more reliable vehicle that holds its value.

You can, but breaking the cycle requires changing how you handle your next vehicle purchase:

• Put more money down: A solid down payment creates an instant equity cushion and qualifies you for shorter terms and better rates.
• Choose a reliable used car: Letting a previous owner take the initial hit on depreciation keeps your loan amount closer to the car's value.
• Get preapproved before visiting the dealer: Shopping around for financing ahead of time gives you leverage and keeps you away from predatory dealership rates.
• Stick to a shorter loan term: Keep your loan term to 60 months or less so you can pay down the balance faster than the car loses value.
• Set a strict budget: Focus on the total purchase price rather than letting a salesperson manipulate the monthly payment numbers.
• Say no to costly dealer add-ons: Skip the extras that salespeople try to slide into your final loan total.

Navigating an auto loan can be incredibly stressful, but you do not have to figure it out on your own. If you have any questions about calculating your equity or want to map out the best way to get your car loan right side up, contact us today to get started.

• Financing information: Financing is provided by third-party lenders, not by St. Pete Mitsubishi. Approval, annual percentage rate (APR), down payment, and loan terms are determined by the lender based on your credit history, income, the vehicle, and other factors. Not all applicants will qualify, and no approval is guaranteed. Rates and terms vary and are subject to change. Contact us for terms that may be available to you.

• This article is general information, not legal, financial, or credit advice. Every situation is different, and nothing here is a recommendation about your specific circumstances. Rates, lender requirements, and regulations change frequently, and the information here may not reflect current terms. Verify details with the lender before making a financing decision, and consider speaking with a qualified financial or legal professional. [Dealership] is not a lender, a credit counselor, or a law firm.