Department | Vehicle Purchasing

Trading in My Vehicle, Even If I’m Upside Down on a Loan

“Upside Down” happens

Being “upside down” happens to people all the time in a variety of loans. It’s the result of owing more money on the loan you’ve taken out to buy an asset than the asset is presently worth. For car owners, being upside down on a car loan occurs when the owner owes more on his car loan than his car is actually worth. This can happen for any number of reasons: damage due to car accidents, major engine breakdowns, and inadequate down payments call all put you upside down in your loan.

Short Answer: Yes! But…

Can you trade in your vehicle if you’re upside down on your loan? Sometimes, yes, but it depends. Let’s say you still owe your lending institution $15,000 on your car which is currently valued at $12,000. You want a truck. You find one, but the truck you want costs $17,000. If your trade is within reason, many dealerships will work with you to try to resolve your negative equity through a trade-in price offered in your favor.

If your car dealer is unable to completely account for your negative equity through its trade-in offer, see if you can make some extra payments to get your loan right side up. Using our current example, if you have the time and the ability to pay your lender $3,000 over the next 6-9 months, then wait. If not, you have at least two other realistic, fiscally responsible options.

Option 1: Seek assistance from your lender to overcome the negative equity

Banks are in the business of making money by lending money. Generally speaking, most banks are more than willing to provide qualified borrowers with access to the little bit of help they may need in overcoming negative equity in an auto loan. The operative word, of course, is “qualified.” If you have a healthy credit score and have been making timely payments on your present car loan, it should not be terribly difficult to ask your bank for a modest increase on your loan. Of course, if you’re driving a Civic and want to upgrade to a Bentley without dramatically increasing your monthly payment, your more realistic bet is option two.

Option 2: Make a down payment that covers the difference of the negative equity

Consumers can’t always convince their lending institution to approve them for more money. Additionally, consumers are sometimes unable or unwilling to accept an increased monthly payment. If you cannot get the assistance you need from your lending institution in order to cover the negative equity, your other realistic, fiscally responsible option is to come up with the difference in cash at the time of sale. Additionally, you might also consider leasing a car since monthly lease payments tend to be lower than monthly loan payments.