Upside down car loans, how to tip the balance.

Upside down car loans, how to tip the balance. So what is an upside down car loan? Is it what happens when you have an accident? If y0u have been or are in an upside car loan you might feel like you’re toppled over. Upside down car loans occur when you buy a car on credit and the price of your car drops faster than the capital of the loan you are paying. To illustrate it, you might have bought a beautiful Lamborghini Diabolo (we’re dreaming here so we might as well enjoy it) for 300,000 dollars (ok, it was on sale) you start enjoying your car and paying the rather large loan. Things go well until you lose your job and your income no longer allows for 5,000 dollars a month car loan payments. The smart choice is to sell your baby. However the economic crisis has hit everyone (does this scenario ring a bell?) so nobody can afford your baby. The price of your car drops to lets say 200.000 dollars and you still owe 275,000 dollars on the car loan. That nightmare is what you call an upside down car loan. You find that to sell your car you actually have to take on a loan to pay the negative equity you have on the vehicle.

The question is how you can recover from that situation. You won’t be surprised that there are not easy fixes, although there are steps you can take to improve the situation.

Check your finances.

This is a blanket piece of advice for everyone in any situation but especially when struggling with a loan. Sometimes we are so used  to a certain lifestyle and to paying for things we have become accustomed to that we don’t realize the savings we can make by just spending less on silly things. You might realize that by making some serious changes in your lifestyle, say eating out less, cutting down on entertainment, etc… you can save a lot of money. Most of us don’t have upside down car loans on a Lamborghini, and are looking at car loan payments in the hundreds of dollars, not in the thousands. Saving a couple hundred bucks a month could be the difference between affording a car loan and not.

Do you have to sell?

This point is strongly linked to the previous question. Having an upside down car loan is a mute point unless you have to sell. The market price of your car might have dropped but if you still like your car and it works then what do you care. The easiest way to cope with a car in negative equity is to continue paying until you no longer are in negative equity. If you simply want to buy a car for the pleasure of it or because you’re bored of the current one, be patient.

Consolidate.

A quick fix that will cost you in interest is to take a larger loan with a larger tenure, which means smaller monthly payments, and consolidate your car loan. You can then sell your car.