What Does Being Upside Down In A Car Loan Mean

Car Loan

You may have heard of an upside-down car loan, but that is a confusing term that many people don’t understand. This will explain what this type of loan is, why it’s bad and how you can get out of it.

What it Means to be Upside-Down

If you bought a new or used car, then there is a chance that you have a car loan to help you pay for it. These loans can be very helpful as you can make a small monthly payment instead of having all the money upfront. At the same time, there is a chance that you might end up with a bad loan.

One of the worst loans is an upside-down car loan. According to Lantern by SoFi, “to say you are upside-down on a car loan means that your car is worth less than the remaining amount you owe on the loan.” This is the best way to put it. You’re stuck paying more overall than your car is really worth.

Why Upside-Down Car Loans are Risky

This is obviously a bad situation because you owe more than the car is worth, but this loan might be riskier than you might believe. For example, imagine that your car is totaled in an accident. Your insurance company will pay you the current value of the car. The problem is that you owe your lender more than its value, so you’ll be stuck giving them the check from your insurance company along with the extra payments.

Another problem is if you suddenly need a new car or vehicle. For example, maybe you have a child or a change of job. Normally you would get a new car and whatever the car place pays for your current vehicle would pay off the existing loan. If you are upside-down, then you will still owe extra to the lender.

Then there is the obvious problem of having trouble keeping up with your payments. These loans give you negative equity, which hurts your overall financial profile.

Ways to Get Out of an Upside-Down Car Loan

You probably want to know how to get out of an upside down car loan. One of the best ways is to refinance your loan. This can help you get a new loan that better suits the car’s current value. At the very least this can help reduce your monthly payments.

Paying extra on your loan can help. This might hurt your pocket in the short term, but it will reduce the difference between your loan and the car’s value. You also want to ensure that you pay your loan on time every month. This will avoid penalties and will make you look more reliable financially. Some people also make a bigger down payment when getting their car to avoid these loans.


An upside-down car loan is bad, but there are ways out. Aside from refinancing your loan, you can also pay extra on your loans to remove the difference. Be sure to get out of this loan as quickly as possible to improve your finances.

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