Is There Any Way to Get Out From Under an Upside Down Car Payment?

If you owe more on your vehicle than what it is worth, you're in a situation known as being "upside down" in your loan. This may be the result of the fact that vehicles depreciate in value as soon as they are driven off a dealer's lot or from rolling an old car loan into a new one. There are some possible remedies to the situation, although they don't always offer a great deal of relief.

Pay Extra Each Month

If you can afford to pay an extra amount in addition to your regular monthly car payment, you can speed up the time frame where your car's value catches up to what you owe. Before considering this option, be sure to read the terms of your loan agreement. If it calls for the assessment of prepayment penalties, making additional payments probably won't help, and will likely hurt, your situation.

Refinancing

If you originally financed your vehicle at a high interest rate, consider refinancing to a lower rate. When you refinance, you will need to borrow an amount large enough to pay off the current balance on your existing loan. You may have to use a method such as obtaining a home equity loan to refinance, as traditional lenders may not be willing to extend financing on a vehicle that is worth less than what you owe. As with making additional payments, you'll need to be sure your original lender won't assess any prepayment penalties when you pay off the loan.

Sell the Vehicle

Consider selling the vehicle if it still fairly new and has retained a good bit of its value, as suggested by Fox Business. If you owe $20,000 on a vehicle that is worth $17,000, try to sell it at its true market value and take out a loan for $3,000 to cover the difference. If you need a vehicle, look into purchasing a used car where the amount you need to finance is much lower. You could even purchase it with cash if you have the funds available.

Staying the Course

If none of these other options is feasible, the best you can do is to continue to make timely payments each month, according to the Dollar Stretcher website. You'll keep your credit in good shape, and as time goes by and you pay more and more of the loan's principal, the situation will improve. When the car is finally paid off, you'll be able to drop comprehensive and collision insurance coverage, which will also help you improve your overall financial situation.