I'm Upside Down On My Car - Part 2
I previously posted about how I'm upside down on my car loan to the tune of about $3,500. My ultimate conclusion was that because my interest rate is low (3.9%), I would just drive on and eventually I will turn right side up. I've noticed that my blog receives a lot of google search hits on this topic, so I thought I would try to provide some more info on this topic.
Being upside down on a car means that you owe more on your car loan than the car is actually worth. My ultimate recommendation has not changed. Just continue driving your car until the loan is paid off.
A recent article in the Detroit News states that 29% of car owners are upside down on their car loans to an average amount of $3,789 above the trade in value.
This statistic, I think, portrays part of the problem. If you are upside down on your car, don't use the trade in value as the value. I don't think there are any circumstances that justify trading in your car if you are upside down. Doing this will just cause you to be upside down on your next car. I'm a big proponent of selling your own car as a private party to maximize gains. We recently sold a car as a private party seller and we received well over $1,500 more than the highest trade in offer.
Selling a car that you are upside down on can be difficult as most banks won't release the lien on your title. This just builds the case for continuing to drive the car.
Some other things that can be considered if you decide to continue driving your car:
- Consider trying to refinance your loan through your credit union if you have one, or through a bank like Capital One to lower your interest rate. A high interest rate can make an "upside down" problem get worse. Sometimes credit unions will be flexible on financing a loan for more than a car is worth. If you do this, do not extend your current remaining loan term. It will make your problem worse.
- Consider GAP insurance. This insurance covers the "GAP" between your loan amount and your car value. Sometimes, if the difference is great, your lender will require it. Sometimes GAP insurance is tough to come by after the initial purchase date, but check with your insurance agent as this practice varies widely.
- Consider adding an extra $50 to your current loan payment. Just because your car payment is $450 doesn't mean you can't pay $500 and get it paid off faster.
In a few weeks, I will post part 3 on this topic which will revolve around avoiding getting "upside down" in the first place.
posted by Please Read @ 2:47 PM
4 comments
4 Comments:
Good post. A year ago now I was looking to sell a car I bought new, because I decided that since I want to have a "fun" car and a "reliable" or winter car as well, it would be better to have a payment on the "toy" and own the reliable one outright (for reasons I will explain in a future post). In any case, I was upside down by about 2k, and it was a HUGE PITA to deal with that fact. I ended up getting a balance transfer from my citibank card to teh car loan, to give me some wiggle-room in selling, and also paid a couple extra payments in the final couple of months that I owned it. Overall, not fun and defiantely should be avoided if at all possible. Either by driving the car until you're not underwater anymore, or by avoiding the situation entirely. I'm curious as to how you're going to recommend avoiding it, but I definately have a efw ideas of my own.
Chipping Away -thanks for sharing the real life experience, maybe we can arrange a dual posting sometime in the next couple weeks!
I was actually considering doing *something* creative to the Padres' car loan that they're upside down on, somewhere in the neighborhood of your 3500 I think, as well some weeks ago. It turns out that doing so simply doesn't jibe at all with what I'm doing and would just make playing personal finance stressful again so I'm going to go with the driving it 'til we're right side up again.
And good suggestion of trying to kick in a little extra each month: I get so caught up in doing the big things that I didn't consider just a little step like that. If that raise *ever* comes through, that is!
Miniducky - Not only do I think that driving the car until its right side up is the best path, it also happens to be the easiest path sometimes.
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