Monday, January 2, 2012

Getting Out of an Upside Down Car Loan

It's actually a lot less common with houses. If it weren't for the housing collapse of the last five years, no one would ever even know that you could be upside down on a home loan. Traditionally, you have always expected the price of a house to go up after you bought a house. No one ever used to expect that they could buy a house and have it fall in value. That's the kind of thing that happens to a car. You have always known that once you drive a car out of the dealership, it falls in value immediately. Over the next year or two, the value the car will fall to depreciation until soon, you'll find that you owe more on the car that you would get if you actually sold it at a used dealership. That's an upside down car loan situation.

This is a problem. An upside down car loan is a problem because should you total your car at some point, the insurance company will only pay you what your car is worth right now. They won't pay you enough that you could buy a new car.

So if you have an upside down car loan and your car is wrecked, you'll find that you still owe the bank your monthly payments as if the car were worth a lot of money, but that the insurance company is paying you very little because they believe that your car is worth very little money. Even if they did pay you enough money to settle was the car financing bank, that would be take care of your total car and what he called on it. You would still have to find money to buy a new car to get to work with. How to get out of such a situation?

Well, there are a number of possible solutions. To begin with, how about using your credit cards to pay off your car loan in part? For instance, if your car payments amount to as much as $500 a month, you may be able to find a credit card that has a manageable-enough APR, and move perhaps $5000 worth of car loan to it. This can work if you can find a credit card that asks you to pay a low APR.

If credit card debt sounds like a scary idea, you may be able to scrape cash together around your home by Selling something you don't need on eBay or getting part-time work. Some people just sell the car outright. Since they have an upside down car loan, they aren't going to get enough selling the car, to cover the loan. But it should drastically cut down what they will need to pay each month. To some people, this can be a great way to go forward.


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