Auto LoansAuto RefinanceRefinance Your Car Loan

Refinancing an Upside Down Car Loan

upside down car loan

If you’re upside-down on your car loan, meaning you currently owe more money than the car is worth, don’t panic. There are a few things you can do to help alleviate the situation.

While many people think refinancing the car is the best way to go, lenders will not lend more money to you than the car is worth. Since the car is used as collateral, they would lose money if you were to default on the loan. However, don’t lose hope—there are other solutions to getting out of an upside-down car loan.

Solutions for an Upside-Down Car Loan

Make extra payments toward the car

Most won’t want to hear this, but unfortunately this is going to be the best solution for your current situation in the long-run. Consider picking up a side job, cutting cable to reduce your monthly expenses or cooking at home instead of going out to eat to save money. Any extra money that you have should be put toward the car loan. Within a few months to a year, you should at the very least owe what the car is worth. Then, you can refinance into a lower rate and reduce your monthly payments.

Get a personal loan to pay off the car

This is only a good idea if the interest rate on the personal loan is lower than on the car. You can use the money you receive to pay off the car, and then work toward paying off the personal loan. While taking care of debt with a different form of debt is not always the best solution, it can be very helpful for the time being as long as you work at getting your financial situation under control.

Use a home equity loan to pay off the car

If you own a home and have built up equity in it, you may be able to qualify for a low interest home equity loan to pay off the car. Since home equity loans use your house as collateral, the interest rates are low. Unfortunately, if you don’t have a home with equity in it, this will not be an option for you. Borrowers should also take note that if you fail to repay your home equity loan, you are at risk of losing your home. Make sure to always make your payments on time each month.

How to Avoid an Upside-Down Car Loan

Even though you may currently be upside-down on your auto loan, it doesn’t have to dictate the future of your finances. Work hard to get this situation under control and use it as a lesson when you purchase your next vehicle. Some things to consider to make sure you do not end up in this same situation again include:

Shop around for your auto loan

Do not assume that the dealership will offer you the best rates. In fact, this is hardly ever the case. Compare auto loan quotes and comparison shop different lenders. With LendingTree, we do the work for you. Simply fill out one form and we will match you to lenders that meet your unique criteria, ensuring you get the best possible interest rate on your auto loan.

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Have a down payment

By having a decent down payment (at least 20 percent), you should never wind up upside-down on your loan even as your car depreciates, assuming you are making all of your monthly payments on time and your car loan is not extremely long (no more than 60 months).

Make extra payments toward your car

Just because the monthly payment is $220, for example, doesn’t mean you can’t pay $250. If you receive a raise, get a bonus or have an extra check one month, put some of that money toward your car. By paying down your loan as quickly as possible, you’ll always be on top of your loan and should never wind up with a loan that’s greater than the car is worth.


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