You've probably heard the adage that a car loses value as soon as you drive it off the lot. The rapidly declining value also means that the value of your new wheels might not outlive your big loan. When you're ready for a trade-in, your old car probably won't be worth anywhere near as much as you think it should be. In fact, many people end up owing more on their cars than they are worth -- being upside down in the loan -- without even knowing it.
Wait to Sell the Car
You could roll the old debt into a new loan when you buy a new car, but doing that will only make you more upside-down on the next car. Doing this can snowball your debt, and being upside down in the first place is a sign that you likely bought more car than you could really afford. Instead of jumping into a new purchase, wait until your car is completely paid off and you own it outright before you sell it. At the very least, don't sell it until its resale value is equal to the outstanding payments on your loan. Then, take out a smaller loan on the next one.
Sell the Car Yourself
If you absolutely must sell the car right away, you should try selling it yourself before going though a dealer. Dealers are likely to low-ball you on the price. According to Bankrate.com, you might be able to make an additional $1,000 to $2,000 on the sale if you bypass a dealer, depending on your car's age, model and how well it's been maintained.
Lease Your Next Car
Another way to quickly get out of the upside down loan is to trade the old car in favor of a lease on a new one. The lease payments will likely be lower than your loan payments, even with the negative equity of the upside loan. Leaseguide.com says this only works if you can stick to the terms of the lease. Leaving it early will only compound your negative equity.
Gap Insurance
If your car is stolen or a total loss while you are upside down in the loan, you will still have to pay off the remainder of the loan after your car insurance company has paid you what it determines is the car's market value. To avoid this problem, you can take out gap insurance on your car.
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