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July 31, 2023

Get back on track and out of your upside down car loan.

Many Americans use car loans to purchase a new or used car since very few of us have enough in savings to cover the vehicle cost upfront. Around 31% of American adults say they rely on car loans to pay for a car in 2022, and an additional 14% say they plan on getting a car loan in the first half of 2023, according to Finder.com. The projected total of Americans with an auto loan is approximately 119.6 million, according to Finder.

Financing a car can help you get behind the wheel sooner, but it also means acquiring debt. An upside down car loan means that the loan balance on the vehicle is higher than the value of the car. The number of Americans that are upside down on their car loans is increasing, according to Business Insider. Analysts say consumers who purchase a car today are at risk of going underwater on car loans eventually as financing costs rise and used car values decrease.

As more consumers are forced to take on monthly car payments of $1,000 or more, more people will fall behind and end up with an upside down car loan. Why is this concerning? If you are upside down on your car loan, it makes it difficult to trade in or sell your car if you can no longer afford the payments. If you want to buy a new car, you would end up having to take on debt for the new car as well as the balance of your old car.

If your car loan balance is higher than your car is worth, here are some actions you can take to get out from an upside down car loan.

1. Determine your negative equity amount.

Find out how much negative equity you have. You can do this by finding your car’s current value from sites like Kelley Blue Book or Edmund’s. Next, subtract your outstanding car loan balance to determine exactly how much negative equity you have. You can find out how much you owe by creating an online account or calling your dealership.

2. Pay the difference.

If you can pay off the difference without depleting your emergency savings, and if your loan agreement allows for prepayment, that’s the best way to get out from an upside down car loan. If you can’t pay off the difference upfront, you can make extra payments to catch up.

3. Refinance your car loan.

If you have a high rate on your car loan, you can try refinancing for a better rate. By refinancing, you could lower your interest rate and monthly payments. You could get a better interest rate if your credit score has improved since you initially applied for credit, you earn more money, you have a co-signer, or you compared rates and found a better lender.

4. Trade in your vehicle.

If your car is in good condition, you could trade it in for a cheaper car or used car that will decrease your monthly payment. Trading in a car when you have an upside down car loan isn’t ideal because you will still owe the difference between the car’s value and your car loan balance. However, if you can find a car that is much cheaper than your existing one, you could save.

5. Sell your car.

If you sell your car for a good amount, you can use the cash to pay off your loan. What you sell your car for might not be enough to cover the whole loan if you are upside down, but you will reduce your car loan significantly. That means you’ll be paying less in interest overall.

6. Hold off.

If none of these options work for your financial situation, you can hold onto the car and continue to make payments until you pay off the car.


More Americans are dealing with upside down car loans as used car values go down, inflation rises, and new cars cost more. If you find yourself upside down on a car loan, there are many actions you can take. Find out how much higher your car loan is versus it’s worth. Create a plan to pay down your car loan, whether that’s paying the difference with some of your savings or making extra payments. You can refinance your car loan if you can get a better rate. Trading in a vehicle or selling it might be a good option if you can get a good price for it and you can’t afford your existing monthly payments. If you can afford your monthly payments, and you like your existing car, you can take no action now.

If you need funding, Uprova.com can help with fast and easy personal loans up to $5,000 for those who qualify. Get started without impacting your FICO credit score today.

The content of this website is for informational purposes only. Nothing on this website constitutes financial or professional advice. Consult a professional for advice suitable to your personal circumstances.

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