Managing Upside-Down Car Loans with Effective Debt Relief Options


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When you end up owing much more on the car than its actual worth, you seem to be upside down on your car/auto loan. You are said to have negative equity. This is quite a precarious situation for you.

If you are thinking of selling your car, the sale price obviously, would not be enough for covering your auto loan. Similarly, in case you are involved in an accident, remember that your insurance would not be liable to pay the total loan cost, but would only pay the value of your car.

This clearly implies that you would be left with no extra money from the amount you get from the insurance, for investing in your next car and also, you would still be owing money on the auto loan.

The Current Scenario

More and more people are ending up with auto loans that are leaving them upside-down. In the year 2014, statistics reveal that 27 per cent of car sales had been made to individuals with negative equity and these people were known to owe an average of about $4,257 on their auto loans.

In majority of cases, the individuals who were found to be upside-down on their auto loans were in the very first place, too eager to purchase a car. They were not aware of the consequences or implications of the situation. It really requires tremendous discipline, patience, and the capacity to come up with creative strategies for getting rid of the debt.

How Do You Land Up with Upside- Down Car Loans?

You must keep in mind that cars immediately lose a minimum of 20 per cent of their worth, the moment you drive away from the dealership parking lot. Often in your frenzy for getting a new vehicle, you forget to consider all these implications while arranging auto financing. Often due to lack of thorough research, you end up overpaying for a car and thus, you are easily upside-down on the auto loan.

Moreover, the situation gets worse for you, thanks to the lure of smaller down payments, dealer incentives and rollover loans. Often people ate tempted by no down payments or really long loan terms. They must realize that cars would depreciate about 20 per cent almost at once and would be losing a whopping 50 per cent of their actual value within 3 years. If you stay away from paying a minimum of 20 per cent as down payment, you are supposed to be upside down with immediate effect. Simply your payments are not enough for matching the depreciation.

Debt Relief and Upside-Down Auto Loans

It is a good idea to get out of your upside-down auto loan by keeping your car till you own it or till your loan amount becomes less than the car’s value. Another effective way of getting out of upside-down auto loans is by paying extra amount every month toward your loan principal or if possible go for higher monthly payments, look for a loan with shorter payment term.

If you are getting bogged down by ever-mounting debts and no strategies seem to be effective, you are no longer able to make the monthly payments toward the car loan, you must consider a suitable debt relief option. The two most frequently used options are debt settlement and debt consolidation.

Consider consolidating your debts, your auto loan would automatically be combined with your existing debts into one single loan. The new loan would definitely, come with better repayment terms and lower interest rates.

Debt settlement could be an effective way of getting out of upside-down auto loans. You could approach a debt relief company and they could offer professional assistance in settling your debt efficiently. The company would be negotiating with your creditors for getting your balances slashed.

The Final Verdict

The best thing is to stay away from any auto loan altogether. Be extra vigilant and do thorough research before buying a car. You must be aware of all the available options and their respective costs, financing and taxes to avoid being upside-down, while you are driving away.

Remember it is really challenging and distressing if you are upside down on an auto loan. But do not lose hope. Stay disciplined and organized. You could surely come out of this mess by using some effective debt relief strategies.

Author Bio: Cyril Wagner is a credit counselor, who is currently attached to a reputed debt relief company. She enjoys blogging. She advises her clients to browse through the Internet to know more about debt relief options.