What to Do if Your Car Loan is Underwater or Upside Down

How to Get Out of an Upside-Down Car Loan: Understanding Your Options When Circumstances Change

No one buys a vehicle thinking that they won’t be able to make their car payments. Yet, despite their best efforts, many car buyers find themselves in the uncomfortable position of owning a vehicle that they can no longer afford. If this is currently happening to you, you might wonder how to get out of a car loan in Canada to avoid an added financial burden. Though having a car you can’t afford is stressful, take a deep breath and learn more about your options before you jump to any decision.

At Team Chrysler, we are the Chrysler, Dodge, Jeep and Ram dealership Toronto residents turn to when looking for the best selection of new and used vehicles for sale in Toronto. We know that financing is an important part of the car buying process and want to help you feel informed about the good and the bad of financing before you make your purchase. Use the information below to help you make the right choice when it comes to financing your next vehicle and learn more about how to deal with an upside-down car loan.

What is an Upside-Down or Underwater Car Loan?

An upside-down car loan might not be something you’ve heard of before, though if you are looking to sell a vehicle you still owe money on, you’ll want to learn about this occurrence. Simply put, an upside-down car loan is when you owe more on a vehicle than you would be able to sell it for. This generally happens when you look to sell a vehicle too soon after purchasing or when you. There are many reasons why an upside-down car loan or negative equity can happen. Knowing what to do if your car loan is upside down can help you make a smart choice about how to proceed when purchasing your next vehicle.

How to Get Out of an Underwater Car Loan

When it comes to learning how to get out of an underwater car loan, you have options. Though an underwater or upside-down car loan can feel stressful, it isn’t always a pressing matter, especially if you are not looking to sell or trade in your vehicle any time soon. If you are looking to get out of an underwater car loan, consider the following options:

Refinance Your Vehicle – refinancing is one of the most popular options vehicle owners choose when looking to get out of an underwater car loan. Depending on current interest rates, refinancing may help you pay down your balance faster and unlock some equity in the vehicle.

Sell Your Vehicle – if you urgently need to get out of an upside-down car loan, selling your vehicle and taking out a loan for the balance that is owed is an option. Selling may help you to manage your finances, and if selling privately, you may also be able to get more for your vehicle, putting you in a better position to pay off what you owe.

Continue to Make Payments – making payments is the most straightforward way to get out of an upside-down car loan. Making your regular payments will chip away at what you owe, eventually leading to a paid-off vehicle. If you can, making additional payments can help to do this faster.

How to Avoid an Upside-Down Car Loan

No one wants to end up with an upside-down car loan, and it’s best to learn how to avoid an upside down car loan before you purchase a vehicle. Though they can be convenient and help make payments manageable, no more down, long-term, and rollover loans can contribute to the likelihood of having an upside-down car loan. Try to avoid overpaying for your vehicle and don’t overextend yourself when buying to protect yourself from feeling the pinch when the unexpected happens.

At Team Chrysler, we know that financing a vehicle can feel like a major decision. That’s why we are proud to offer a variety of options for our customers. Contact a member of our team or apply for vehicle financing online, and let us help you find a vehicle that suits your lifestyle at a price point that works.

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Full Video Transcript

A question that many people are asking right now is, “What are some ways to reduce your car payment or get rid of it on an existing contract?” This is indeed a very popular question, and rightly so. To address this, we first need to determine whether your car is financed or leased, as this will guide the steps we take next.

To reduce a car payment, we need to evaluate your car. This involves bringing your car in so we can assess its current market value. Once we know this, we’ll conduct what’s called a payout, comparing the amount you owe on your car with its value to determine your equity position. If you’re in a positive equity position, where your car is worth more than the loan, the process is straightforward. You can sell your car to the dealership and receive a check for the difference in balance. However, if you’re in a negative equity position, where your car is worth less than the loan, you’ll need to pay the balance upfront. Another option is to buy a cheaper vehicle, thereby reducing your payment and transferring the negative equity to the new vehicle’s loan.

For example, let’s say you originally bought a car for $50,000 and now want to trade it in for a $30,000 vehicle. We will evaluate if the cheaper vehicle can accommodate the additional balance, and if approved, this will lower your monthly payments. We recommend that customers visit the dealership to discuss their options. Whether it’s a desire to tighten the budget, save money, or adjust to life changes like a growing family, we can help you find the best solution.

Additionally, if you have a leased vehicle, you might have the option to transfer the lease to someone else. Most manufacturers allow this, but the new lessee must have good credit to qualify. If you made a significant down payment, you might even be able to reclaim part of it. We can assess your equity position in the lease, potentially putting some money back in your pocket.

Another alternative is refinancing your vehicle. This involves the dealership buying your vehicle and selling it back to you, potentially extending the loan’s term. For instance, if you initially financed the vehicle for four or five years, and it qualifies for up to seven or eight years, we can extend the term. This spreads the payments over a longer period, reducing your monthly outlay. Remember, though, you’ll need to pay taxes again on the amount owing. Auto loans are typically open, meaning you can pay them off early without penalty, thus reducing the total interest paid.

In conclusion, whether you’re looking to settle the amount on a finance or a lease, there are several options available to help you reduce your car payments. We encourage you to visit us at the dealership for a personalized options review to find the best solution for your situation.