Couple Money

Escaping From an Upside Down Car Loan

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Stressed out because you're upside down on your car loan? Learn the options you have to escape and how can build up money for your next car!

Options With an Upside Down Car Loan

Last episode we got into car loans. For many couples, those car payments are a huge debt that eats up a big chunk of their monthly budget.

As stressful as it can be, there's another situation that can make car loans even worse – when you owe more on the car than what it's worth, also known as being upside-down on loan.

Upside down car loans are worse because they are loans on a depreciating asset.

You will continue to lose value even as you make your payments. So what can you do when you have a car loan that you're trying to get out of whether it's upside down or not?

Today, I want to go over some of the options you have on how you can escape or at least minimize the damage your car loan is causing you.

In this episode we get into:

Hope this helps!

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Resources to Pay Off Your Debt Faster

Tired of being in debt? Here are some resources to help you dump it.

Refinance the Car

If you want to keep the car and just want the payments to be more affordable, you can try to refinance your car.

This may be a long shot because you have to account for the difference between what you owe and what the car is worth.

However, there are a few ways you can close that gap.

If you're able to gather up that money, call up or visit your bank or credit union. Speak with someone at your local branch and see if you can work out a refinance.

Another option is LendingClub. They have flexible terms and great rates.

With LendingClub, you can lower your payments, check your rate in minutes, and instantly see the offers that you qualify for. You can check them out here.

Sell the Car

If this car is a huge debt you're carrying, my advice would be to sell the car. If your budget is already stretched, removing this debt as fast as possible can be a huge relief.

The problem of course that what you sell the car for will most likely be less than what you owe. So what do you do with the difference?

Before you put the car on the market, talk it over with your current loan provider and explain to them that you'd rather owe them a few grand then the five figure debt you're in.

Selling the car means that you have to be able to transfer the title so either they can work with you and get an arrangement made or you may have to go to your local credit union or bank and take out a personal loan to cover the difference.

So what if you have things in place, just how do you sell your car for the most you can?

If you have any other suggestions for digging out from an upside down car loan, please send them in.

Building a Car Fund Fast

Even though getting rid of your upside down car loan frees you up of some debt, you may be wondering about your transportation afterwards.

I go into detail on how you can build up your car fund, but if you're pressed for time, you can start off by taking advantage of tax season.

You can try to time things so you get rid of your car loan close to your refund. Even if you have $1,000 you can find a reliable used car.

Start by checking out Craigslist and searching cars by owners. We picked up a great deal on a Toyota from a nearby seller.

Speaking of nearby,tap into your social network and see if anyone is looking to unload a car.

If you're worried about getting lemon, spending a little bit of money upfront can save you a ton down the road.

Grab a CarFax report for the car you're looking into and have your mechanic give it a once over.

Once you have a car to get to work, that'll take a lot of pressure off and you can focus on growing that car fund!

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This episode was originally released in January 2015. Show notes were updated in March 2019.

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