An "upside down car loan" is a term used to describe a vehicle loan that exceeds vehicle trade or sales value. You can get out of your upside down car loan legally, although your options may not prove favorable if you have to provide a down payment or cash out-of-pocket to do so.
Vehicle Value
Before exploring your options, determine the value of your vehicle. Your car may warrant more than you think. Use Edmunds.com and the Kelley Blue Book website to gauge your private sale and trade-in value. The NADA Guides website also offers trade values. Carefully input your information, including mileage, location and options to gauge a realistic value for your car. Check the values from all websites and determine a median value, as no two guides offer the same appraisal value. Search classifieds for like-cars in your area to determine market value; some vehicles may warrant a higher value because of availability or options.
Sell Your Car
You can sell your vehicle even if its loan isn't satisfied. You must pay your lender for the vehicle's remaining loan balance after the car's sales price. Call your bank to obtain your car's payoff amount. If you want to get rid of your car, providing the extra money to pay off the loan is likely worthwhile. You'll end up paying the negative equity over time while your vehicle's value only decreases. Budget for extra money you'll have to pay before selling your vehicle.
Purchase Another Vehicle
Most states offer tax savings when buyers trade in a vehicle toward another purchase. Tax savings are beneficial in areas with higher tax rates. For example, if your trade value is $10,000 and you live in an area with a 7 percent tax rate, you'll save $700 in tax charges. If pursuing a new-car purchase, many manufacturers offer rebates, which further help to cover negative equity. You can limit your down payment amount for a new loan or decrease your negative equity completely if purchasing a vehicle with rebates and take advantage of tax discounts.
Lease a Vehicle
Leasing a car offers the opportunity to terminate your current loan for an affordable monthly payment. With good to excellent credit, you can expect to obtain a lease approval that's equal to 120 percent of your new car's value. You may not have to provide a down payment, but should speak to a dealership to find out if this option is possible. If you aren't able to come up with the down payment required to sell or trade your car, leasing offers an alternative option. At the end of the lease term, you can walk away from the lease without concern for market value or negative equity.
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