5 steps to get out of your upside down car
Wednesday, Mar 10 2021
Getting upside down in your car loan isn’t something you plan, it just happens. Luckily, you can get out from under this nightmare with these 5 steps. We didn’t say it would be easy, but you can do it with some dedication!
5 steps to get out of your upside-down car
1. Assess the value
Visit websites like NADA or Kelly Blue Book to find the value of your car. Make sure that you’re as detailed as possible to get the true value of your car.
2. Find the “gap”
After you assess the value and figure out how much your car is worth, you can try to close the gap. The amount of money between what you owe and what your car is worth is going to be the amount you are “upside-down”.
For example, let’s say your car is worth $20,000, but you owe $26,000 on the loan. Your “gap” would be $6,000. That’s the amount you would want to try to take care of.
Speaking of the gap, if you are upside down in your loan, you might see if you signed up for gap insurance. Gap insurance covers that gap if you were to get in an accident. You still want to try to pay down on that amount, but gap insurance is always a good idea just to protect yourself.
3. Close the Gap
Next, you’ll want to assess your financial situation to find ways to close the gap. You definitely don’t want to find yourself in an emergency situation where you have a $6,000 gap that you have to pay a.s.a.p.
Some situations could include a car wreck resulting in a total loss. At that point, the insurance company would pay what your car is worth and not what you owe on your car note. That would result in you scrambling to try to pay that loan quickly.
4. Ways to Pay
If you have savings, you’ll want to see how much of that you can use to pay down on your loan. If you don’t have a savings account, consider taking out a personal loan to help you pay down what you owe.
Another option would be to take on some extra side jobs to pay down on the loan faster. If this is an option, it’s better than trying to take out a loan.
5. Consider Selling
One way to get out of an upside-down vehicle is to sell it. If you’re in a situation where you are trying to decide whether to turn the vehicle back into the lender for a voluntary repossession, try these other options listed first. Even if you voluntarily surrender your car, you will still be on the hook for the amount that you are upside down. So, it’s best to try to take care of that amount before doing anything hasty.
Ways to Avoid being upside down
One way to avoid being upside down is to make a large down payment when purchasing your car loan. This will bring down the total loan amount and help keep you from being upside down.
Another trick is to make extra payments toward your loan so you can stay on top of your car’s depreciation. You could also consider getting a shorter term on your auto loan and pay off the note faster. That will keep you ahead so that you can build equity and not get upside down.
We would love to discuss your options with you here at Focus Federal Credit Union. Inquire about a personal loan or gap insurance and let us help you get right side up again!