Exiting the Vehicle
If you land upside-down and you appear to be uninjured, reach toward your ceiling, bracing yourself with one hand while stabilizing your feet on the floor of the vehicle, and then undo your seat belt. Be extremely careful, as this is where the majority of post-rollover injuries occur.
Oftentimes, the dealership will finance the negative equity into your new loan. This decision can cost you even more when you consider the interest charges on the additional amount financed and the fact it will contribute to you being underwater on your new car too!
The only way to get out of it. Is to cough up the difference or just put a down payment, either way you'll have to pay. That's why generally it's not recommended to carry negative equity over into another ride.
When the amount you owe on your auto loan is greater than the vehicle's value, you have a negative equity car loan. Many people refer to it as being upside down on your car loan. Cars decrease in value the minute you drive them off the car lot. A new car can possibly lose 20% of its value in the first year.
Once your payment is at least 30 days past due, your account is considered delinquent, and your lender may report the missed payment to credit bureaus. This negative mark will remain on your credit report for as long as seven years.
To get out of an upside-down car loan, consider making extra payments, refinancing or selling the vehicle. To avoid being upside down on your loan in the first place, shop around for good rates and try a larger down payment or a shorter repayment term.
Yes, it is possible to get out of a car loan, but there are only two ways to do it: satisfying the terms of the loan or defaulting on the loan (which can end up with your car being repossessed). Unfortunately, it's not possible to just give back a car and end the financing agreement as though it never happened.
Voluntarily Surrender the Car
A voluntary surrender allows you to return the vehicle to your lender on your terms, and while it can damage your credit, it won't have as big an impact as a repossession. You'll also be able to avoid certain repossession-related costs, which lenders may choose to add to what you owe.
Negative equity while car trade-in means that you owe your car lender much more than your car's current value; however, negative equity car trade-in is still possible and you can still trade-in your car upside down.
Note: If you're selling a car with an active loan, you're still the one responsible for paying it off, so the remaining balance on the loan will likely be subtracted from the price the dealer offers you. So if you owe more than what the dealer offers, you'll need to pay the difference to the lienholder.
You still owe $18,000 on your car loan. That means you have $3,000 in negative equity. To trade in your car, you have to pay that $3,000. Some dealers will promise to pay the $3,000 off themselves — but they'll really pass the cost on to you.
It can make trading in your car financially dicey. It's important to carefully consider your options — such as continuing to pay off your loan to get positive equity in your car or rolling over your negative equity into a new auto loan — when deciding how to handle your trade-in.
Can you return a new car if there's something wrong with it? Yes — most states have lemon laws to protect consumers if their newly purchased car has unforeseen mechanical issues. You may also be able to return a vehicle if your lender didn't approve a loan or the salesperson was dishonest.
If you're interested in trading in your upside-down car, some dealerships will offer to pay off the loan for you. Sounds too good to be true? It's because it is. While the dealer will pay for this loan upfront, this balance will get added to the loan of the new vehicle.
Voluntary surrender counts as a derogatory or negative mark and will stay on your credit reports for up to seven years. This stain on your credit reports might prevent you from being approved for new credit and your terms, like interest rates, will likely be higher.
Contact Your Lender
Contact your lender as soon as you know you won't be able to make payments. Many lenders are willing to work with borrowers to avoid vehicle repossession and get their payments under control. The sooner you get in touch, the more options your lender may be able to offer.
Being upside down on a car loan means you owe more on the loan than your car is worth. Selling your car or paying off the loan early are the two main ways to get out of an upside-down car loan. Trading in your car, refinancing the loan, or surrendering your car will not help you get out of an upside-down car loan.
Does GAP insurance cover negative equity? Yes. Negative equity (aka an upside-down loan) is another term for the gap between what you owe on your auto loan and the car's actual value. GAP insurance covers the difference between the two.
Subtract the payoff amount from the value of the vehicle.
If it's negative, you're upside down on the car loan. Selling a car with negative equity means you need to give the lender all the money from the car sale and pay for the negative equity.
Losing your car can hurt your credit quite a bit unfortunately. Having your car repossessed or surrendering it voluntarily is seen as a major negative event by lenders. They'll view you as high-risk. Expect your credit score to take a big hit, maybe over 100 points or more.
As mentioned previously, however, a collection agency may try to sue you for the unpaid amounts you owe, attempt to garnish your wages, or place a lien on your home through a court order. 5 And, as with a secured loan, you can expect a serious impact on your credit score.
In some states, you can choose jail instead of repaying debt
Some states, including California and Missouri, offer a third option for those who cannot afford to pay their criminal justice debts: choosing jail. By choosing to go to jail, it may be possible to avoid wage garnishment and reduce criminal justice debt.
A debt doesn't generally expire or disappear until its paid, but in many states, there may be a time limit on how long creditors or debt collectors can use legal action to collect a debt.