How To Calculate Negative Equity
If youre pretty sure youre upside down on your car loan and youre thinking about trading in your vehicle, its important to figure out an estimate of how much negative equity you have. Youll need to know some key pieces of information:
- Your cars estimated value
- The amount you owe on your car loan
Third-party automotive websites, such as Kelley Blue Book and Edmunds, offer tools to help estimate your cars trade-in value. Youll just need to input details including the year, make and model of your car, and the number of miles on its odometer.
Contacting your lender is an easy way to find out how much money you owe on your car loan. You can usually find out by phone or by logging into your account on your lenders website to view the payoff amount. Your loan payoff amount can be different from your current loan balance because it includes any interest you owe through the day you pay off the loan, in addition to any unpaid fees.
If the amount owed on your car loan is higher than your vehicles estimated value, the difference between the two is negative equity. For example, if you owe $9,000 on your car loan and your vehicle has an estimated value of $6,000, you currently have $3,000 of negative equity.
Secrets To Making Your Upside
Is the balance on your auto loan more than your vehicles resale or trade-in value? Welcome to The Upside Down, a place where millions of people reside each year. Unfortunately, being underwater on your car loan can be quite a stressful situation to be in. However, with some patience and guidance from a trusted expert, and after making a few difficult decisions, your bad car loan can be put in the rearview mirroror prevented altogether.
Stop yourself from drowning in bad auto financing debt today! Here are some of the industrys biggest secrets about upside-down car loans.
How To Get Out Of An Upside
6 Minute Read | September 13, 2021
Everyone knows theres nothing quite like a brand-new car. Theres just something about leather interior, a shiny console and those fancy cup holders that warm your drink with the push of a button.
But dont be fooled. No amount of Armor All can keep your new car from losing a chunk of its value the moment you drive it off the lot. And if you purchased the car with a loan, you just increased your chances of having an upside-down car loan.
So, if youre the lucky owner of an upside-down car loan, dont worry. Were here to help.
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Best Options For Dealing With An Upside
The economics of buying a car is driving many households into a financial pothole where the value of their car is less than the remaining balance on their car loan.
Nearly 33% of car buyers last year traded in a car that was worth less than the remaining loan balance, according to Edmunds.com, owing on average more than $5,000 on their old loan.
In 2012, less than one in five trade-ins involved buyers who were upside down on their existing car loan, the industry term for borrowers whose asset is worth less than their debt
Car Loan Upside Down 5 Options When Youve Got Negative Equity
You owe more on your auto loan than the value of the car itself. Now what?
That new car smell, fancy leather seats, blind spot cameras theres a lot to love about getting a new set of wheels. Except, perhaps, the price tag. According to Kelley Blue Book s most recent data , the average price of a new vehicle is $38,948.
If youve purchased a new vehicle recently, chances are you took out a loan to pay for it. About 85% of new cars are financed with a loan or lease. Auto loans themselves arent a problem dealerships, banks, and credit unions often offer competitive rates and other incentives, making car payments more affordable.
What can be a problem is depreciation, the reduction in your cars value over time due to age, wear and tear, and other factors. In fact, in the first 12 months alone, your brand new car loses about 20% of its value.
| How Much Value Do Vehicles Lose Over Time? |
| Year 1 |
2021 Auto Refinance Rates
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Key Takeaways On How To Get Out Of An Upside Down Car Loan
Being underwater is never fun. If you have an upside down car loan, its important to act fast, so you dont fall further into debt. While your car begins to depreciate, your loan and its interest rate will still be there. From refinancing your car to selling it, these tips on how to get out of an upside down car loan will help you stay afloat and build equity in your vehicle.
Large Inventory Helps You Get The Best Value
McGrath Auto is proud to have one of the largest inventories in the state of Iowa. In order to keep our inventory full of high-quality vehicles, we are always making the best possible offers on trade-ins. Your trade might be worth more than you think, but the only way to find out is to stop in. Remember, it’s completely free to have one of our experts assess your vehicle.
There are also things that you can do to help secure an auto loan despite your negative equity. For example, a down payment or a co-signer can significantly increase your borrowing potential.
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Getting Upside Down On A Car Loan
To understand how to get out of trouble, you first need to understand how you got upside down on a car loan in the first place.
- A car depreciates in value very quickly, especially in your first three years of owning it. When you buy a car with a low down payment or no down payment at all you immediately owe nearly the entire purchase price, but its already worth less. For example, if you buy a $20,000 car and only put a thousand dollars down, youll be upside down as soon as you drive the car off the lot. You owe $19,000, but the car is only worth $16,000.
- Its easy to overpay if you dont do your research before buying a car. Your overpayment doesnt make the car worth any more in the fair market, so if you pay $24,000 for a car thats now worth $16,000 youre upside down and already facing a big problem.
- Its not always your fault. When an unscrupulous car dealer takes advantage of you, you can end up owing more than you should.
- When you add too many frivolous options to your car, you increase your final total, but not the value of the car. Thats a recipe for being upside down even faster.
- If youre already upside down on one car loan and you try to get a new loan, dealers will often roll the shortfall from the old car to the new car without even telling you.
How To Trade In A Car With Negative Equity: 3 Options
When you consider that a new car can lose 20% or more of its value within the first year, its easy to see how you could wind up owing more than your car is worth.. If the amount you owe on your auto loan exceeds the value of your vehicle, you have whats known as negative equity.This is also referred to as being upside down on your car loan.
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Upside Down On A Car Loan Heres What To Do
It is common knowledge among automotive salespeople that roughly two-thirds, more or less, of all new-car buyers who walk into a dealers showroom have a current car to trade in, and roughly two-thirds of those, more or less, owe more on that existing vehicle than its trade-in value.
If you owe more on something than its worth, in the terminology of the industry that is known as being upside-down, and it applies to roughly half of all new-car buyers. This didnt used to be so common, as there was a time when a prudent buyer tended to purchase a car and diligently pay it off. But, with incentives on the rise, low-interest, long-term loans dominating the financial landscape and increasing numbers of buyers over-extending themselves by seeking instant automotive gratification, more people are finding themselves in the situation of owing more on the vehicle loan than the car is worth.
How To Avoid Getting An Upside
When you take out a new car loan, these steps can help you avoid going underwater on it:
- Plan to pay the taxes and fees outright: Rolling taxes and fees into your loan automatically puts you upside-down, since youll be financing more than the car is worth.
- Make a down payment: Because depreciation happens fastest in a new cars first year, making a down payment can offset the length of time youll be upside-down. Try to put down 20 percent of the total cost of the car, including taxes and fees. Where possible, take advantage of cash back rebates offered by the manufacturer and any trade-in value from your previous car.
- Choose an appropriate loan length: If you can afford it, choose a loan term equal to the amount of time youre expecting to keep the car. If you trade in your car before its paid off and you are upside-down, either youll need to pay the difference in cash or the payoff amount will get rolled into your next loan. That will automatically put you even further upside-down in your next car.
- Choose a vehicle with slow depreciation: Different makes of cars hold their value better than others, and selecting a car that will depreciate more slowly will shorten the length of time you are upside-down in the car loan. As you research what car to buy, look at the ownership costs listed for each car on sites like Kelley Blue Book to see the differences in depreciation among your top few choices.
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Solution #: File For Bankruptcy
This option is a last resort that you should consider only if you are struggling with overwhelming debt in all areas. If you are spiraling deeper into debt each month and can find no way out, bankruptcy may be your only solution. If you’re court-approved for Chapter 7 bankruptcy, you may be able to eliminate you car debt. If you file for Chapter 13, you may be able to renegotiate you car loan to something more affordable.
- Pros: Bankruptcy will enable to you to climb out of the red.
- Cons: This will leave you with extremely poor credit and can make it impossible to buy a new car for years to come. During this time, you may be limited to purchasing only used cars that you finance at extremely high interest rates.
What Can You Do About Your Upside
If you put ten people who have bought a new car in the last couple years in a room, chances are that four of them are upside-down on their car loans. An upside-down car loan is the less onerous euphemism for saying that they owe more on their car than they could ever get if they sold it or traded it in.
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Determine Your Cars Current Market Value
If youre thinking about trying to get out of your car loan contract because of the possibility of it becoming upside-down, its a good idea to get an estimate of the cars current market value, before jumping to any conclusions.
You can likely find a number of websites that will calculate the value of your car, based on certain criteria like the make, model, color, etc. However, if you can also get a basic estimate by checking the mileage, going over the cars various features and what shape its in, then look at used car classifieds and websites to see what cars similar to yours are currently going for. Once youve done this, calculate the approximate amount of your loan payments, making sure to factor in the interest costs, weighed against your income. If your loan payments add up to more than the car is worth, you might want to consider other options.
Check out this article about how to avoid car loan debt.
Ride It Out Until You Have Positive Equity
The best way to get out from underneath an upside-down vehicle loan is to continue making your monthly payments. If you arent restricted by prepayment penalties, consider overpaying each month. Continuing with your payments will keep your credit intact, as well.
If you take this popular route, its important to notify your lender that youre applying any extra payment toward the principal on your loan, not the interest accrued.
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How To Get Out Of Your Car Loan
Categories
Cars, whether theyre new or pre-owned are both a big responsibility and a big expense. There are many different costs to factor in, such as fuel, insurance, oil changes, repairs, tires, etc. Not only that, but youll need to consider other elements, like where youre buying the car from, what your warranty will cover, if any, and of course how youre planning to pay for the car in the first place. Depending on your current income and how expensive the car is, it can take years to finance completely, so its common for many would-be car owners to apply for a car loan.
A car loan, like any kind of loan, is a system that allows a buyer to pay off the total value of the car in monthly installments, making it more affordable. After all, very few people are going to be able to pay for a $25,000 car using a cheque.
However, when all the other car expenses are being considered, there are other factors that many people forget to take into account before applying for their loan, such as the cost of interest. They might be able to afford the loan payments initially, but something else might happen further down the road that makes paying more difficult. Loss of employment, decreased income and all manner of other financial emergencies might arise, making the car loan payments harder to afford. If this is the case, there are a couple of different ways of dealing with a car loan before it gets completely out of control.
How Can I Avoid An Upside
If you currently own a car, or youre browsing the market for your dream car, here are some ways to be proactive and avoid an upside-down car loan:
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Ways To Get Out Of An Upside Down Car Loan
Theres nothing better than smelling that new car scent as you traverse down the backgrounds in your brand-new ride. But what most new car buyers dont know is that the moment you drive that new shiny car off the lot, it can lose up to 10 percent of its value after one month of driving, and up to 20 percent after a full year, according to a report by CarFax.
Soon, that new car smell will be replaced by the smell of burning money. If you dont budget correctly and finance your new car properly, you may find yourself in a potentially damaging financial situation where you end up with an upside down car loan.
If youre upside down on a car loan, or underwater, it means the value of your car loan is greater than your cars overall value. Being in a situation like this can be frustrating and stressful, especially if youre struggling to pay that loan off. If youre looking to get out of an upside down car loan, this article may come in handy. Well go over how to get out of an upside down car loan and answer other important questions, that can be reached using the jump links below.
