We believe everyone should be able to make financial decisions with
confidence. While we don't cover every company or financial product on
the market, we work hard to share a wide range of offers and objective
editorial perspectives.
So how do we make money? Our partners compensate us for advertisements that
appear on our site. This compensation helps us provide tools and services -
like free credit score access and monitoring. With the exception of
mortgage, home equity and other home-lending products or services, partner
compensation is one of several factors that may affect which products we
highlight and where they appear on our site. Other factors include your
credit profile, product availability and proprietary website methodologies.
However, these factors do not influence our editors' opinions or ratings, which are based on independent research and analysis. Our partners cannot
pay us to guarantee favorable reviews. Here is a list of our partners.
Is Your Car Loan Upside-Down? How to Handle Negative Equity
Being upside-down on a car loan can lead to problems. Here's what to know, with advice for becoming right-side up again.
Many, or all, of the products featured on this page are from our advertising
partners who compensate us when you take certain actions on our website or
click to take an action on their website. However, this does not influence our
evaluations. Our opinions are our own. Here is a list of our partners and
here's how we make money.
Updated · 2 min read
How is this page expert verified?
NerdWallet's content is fact-checked for accuracy, timeliness and
relevance. It undergoes a thorough review process involving writers and
editors to ensure the information is as clear and complete as possible.
Roberta Pescow is a contributing writer specializing in health, home improvement, food, personal finance and lifestyle. Her articles have been syndicated on over 200 websites nationwide.
Shannon Bradley covers auto and student loans for NerdWallet. Before joining NerdWallet in 2021, Shannon spent 30-plus years as a writer, content manager and marketer in the financial services industry. In these roles, she developed financial expertise and created educational content covering a wide range of personal and business topics. Shannon is based in Newburgh, Indiana.
Published in
Lead Writer & Content Strategist
SOME CARD INFO MAY BE OUTDATED
This page includes information about these cards, currently unavailable on
NerdWallet. The information has been collected by NerdWallet and has not
been provided or reviewed by the card issuer.
Without even knowing it, you may have put yourself in a financially precarious position: being upside-down on your car loan. Being upside-down on your car loan simply means you owe more than the car is worth. It’s sometimes called being underwater on the loan or having negative equity.
However you became upside-down, there are steps you can take to get right-side up again to avoid future problems.
How does a car loan become upside-down?
Maybe you bought a new car without making a down payment. So, as the car depreciates in value, you eventually owe more than it’s worth.
Or perhaps you opted for a low monthly payment by stretching your loan to 72, 84 or even 96 months. Because you’re taking longer to pay off the loan, which is also accruing interest, the car’s value could drop below the remaining amount you owe.
So, if your car’s worth $10,000 but your loan balance is $12,000, then you’re $2,000 upside-down. If you want to get rid of your car, you’ll have to sell or trade it in and hopefully get $10,000 for it. You would then use that money to pay off your loan, but you’ll also have to pay the lender an additional $2,000.
On the other hand, if you have positive equity — you owe less than your car’s value — your car becomes an asset, giving you more financial flexibility in life. For example, with $2,000 in equity, you could trade in your current car and have $2,000 as a down payment on a different one.
🤓Nerdy Tip
You can use various sources to determine the value of your car, but keep in mind it isn’t an exact science. Depending on the market you live in or the condition of your car, you might not receive the full value amount. Also, the value varies depending on whether you trade in your car or sell to a private buyer.
Why being upside-down is risky
Being upside-down isn’t automatically a problem if you can keep up with payments and keep your car until the loan is paid off. But life is unpredictable, and things can change quickly.
Here are a few common situations where being upside-down could cause problems:
Your car is totaled. After an accident, the insurer pays out the current value of your car (based on their estimate). But if you’re upside-down, you’ll owe the lender that amount, plus your negative equity — possibly several thousand dollars out of pocket.
You can’t keep up with the payments. If you’re struggling to make ends meet and want to downsize to a cheaper car, you’ll have to pay the negative equity when you trade in or sell your current car. That’s a tough order if you’re already short on cash.
You suddenly need a different vehicle. Perhaps you’re driving a sports car now but discover you’ll soon have a baby. You’d like to trade in the sports car and buy a minivan. Again, you would have to pay the amount you owe above the trade-in value of the sports car. Another option could be rolling your negative equity into your new car loan, which could put you right back in an upside-down position.
Determine if you’re upside-down
Fixing your situation begins with figuring out the status of your loan.
Check your loan balance. Contact your lender or check a recent loan statement to find out how much you still owe.
Estimate your car’s value. Look up the trade-in value of your car on pricing guides like Edmunds.com, Kelley Blue Book or the National Automobile Dealers Association (NADA). This gives you a conservative estimate, since trade-in prices are lower than private party prices.
Do the math. Subtract the loan balance from the car's value. If the result is positive, you have equity. If it’s negative, you’re upside-down.
NerdWallet's ratings are determined by our editorial team. The scoring formula takes into account factors like maximum rates, variety of loan options, visibility of borrower requirements, accessibility, speed of funding, fees and more.
Best for borrowers with good or excellent credit who want fast approval and funding to buy a new car.
NerdWallet's ratings are determined by our editorial team. The scoring formula takes into account factors like maximum rates, variety of loan options, visibility of borrower requirements, accessibility, speed of funding, fees and more.
4.5
Est. APR:
Annual percentage rate (APR) represents the true cost of
borrowing money. It is your interest rate plus any loan fees,
and is expressed as a percentage.
Annual percentage rate (APR) represents the true cost of
borrowing money. It is your interest rate plus any loan fees,
and is expressed as a percentage.
6.99 - 15.74%
Term: 24 - 84 months
You will be redirected to the partner's website.
The terms presented here are estimated and provided solely to assist you
in finding a great lender. The terms may vary based on the partner's terms
and conditions.
You will be redirected to the partner's website
The terms presented here are estimated and provided solely to assist you in finding a great lender. The monthly payment amount, Annual Percentage Rate (APR), and any other terms are based on standard Consumers Credit Union rates and terms for your NerdWallet provided credit score, zip code, and the other self-provided information. These terms may vary based on your credit history, your individual income, or other terms of the lender.
NerdWallet's ratings are determined by our editorial team. The scoring formula takes into account factors like maximum rates, variety of loan options, visibility of borrower requirements, accessibility, speed of funding, fees and more.
Best for applicants who want to compare multiple new car purchase loan offers.
NerdWallet's ratings are determined by our editorial team. The scoring formula takes into account factors like maximum rates, variety of loan options, visibility of borrower requirements, accessibility, speed of funding, fees and more.
4.0
Est. APR:
Annual percentage rate (APR) represents the true cost of
borrowing money. It is your interest rate plus any loan fees,
and is expressed as a percentage.
Annual percentage rate (APR) represents the true cost of
borrowing money. It is your interest rate plus any loan fees,
and is expressed as a percentage.
6.24 - 29.90%
Term: 24 - 84 months
You will be redirected to the partner's website.
The terms presented here are estimated and provided solely to assist you
in finding a great lender. The terms may vary based on the partner's terms
and conditions.
You will be redirected to the partner's website
The terms presented here are estimated and provided solely to assist you in finding a great lender. The monthly payment amount, Annual Percentage Rate (APR), and any other terms are based on standard Consumers Credit Union rates and terms for your NerdWallet provided credit score, zip code, and the other self-provided information. These terms may vary based on your credit history, your individual income, or other terms of the lender.
Auto Credit Express
New car purchase loan
Not yet rated
Best for new-car buyers who can’t qualify for a lower-rate loan through a traditional lender and need help finding a dealer with subprime lending.
Min score: None
Amount: No min. - $100,000
Min. AmountNo min.
Max. Amount$100,000
Not yet rated
Est. APR:
Annual percentage rate (APR) represents the true cost of
borrowing money. It is your interest rate plus any loan fees,
and is expressed as a percentage.
Annual percentage rate (APR) represents the true cost of
borrowing money. It is your interest rate plus any loan fees,
and is expressed as a percentage.
N/A - N/A
Term: 24 - 84 months
You will be redirected to the partner's website.
The terms presented here are estimated and provided solely to assist you
in finding a great lender. The terms may vary based on the partner's terms
and conditions.
You will be redirected to the partner's website
The terms presented here are estimated and provided solely to assist you in finding a great lender. The monthly payment amount, Annual Percentage Rate (APR), and any other terms are based on standard Consumers Credit Union rates and terms for your NerdWallet provided credit score, zip code, and the other self-provided information. These terms may vary based on your credit history, your individual income, or other terms of the lender.
Now that you know where you stand, you can take action. While these steps aren’t easy, they will give you peace of mind to know you’re moving in the right direction.
Make extra payments. The faster you pay down your loan, the faster you’ll eliminate the negative equity. This can also reduce the amount you pay in interest. Just make sure extra payments go toward your principal.
Refinance with a shorter loan term.Refinancing your car won't reduce the remaining loan balance, but it may help you get right-side up faster and save you money on interest over time. However, this option will mean a higher monthly payment, so make sure you can afford it. Use an auto loan refinance calculator to see what makes sense for you.
“Drive through” the loan. If you continue making on-time payments, you should eventually catch up with the car’s value and begin building equity. However, this takes time and patience. If you have a significant amount of negative equity, consider purchasing gap insurance, which would cover the difference between an insurance settlement and the amount owed on the loan.
Bury the negative equity in a lease. You may be able to trade your car on a leased vehicle, then turn the car in and walk away. Your payments will reflect the negative equity, but at the end of the lease you will walk away owing nothing.
Avoid rolling over negative equity
If your car loan is upside-down, and you go to buy a different car, some dealers may encourage you to roll your negative equity amount into a new loan as a solution. But doing this, especially if you do it more than once, can put you into an ongoing cycle of negative equity.
Your new loan payment is higher, and you will continue paying interest on the balance of your previous loan, making it even harder to break the negative equity cycle. If you can, it’s better to take control of the situation and work to get right-side up before selling or trading in your car.
Article sources Article sources
NerdWallet writers are subject matter authorities who use primary,
trustworthy sources to inform their work, including peer-reviewed
studies, government websites, academic research and interviews with
industry experts. All content is fact-checked for accuracy, timeliness
and relevance. You can learn more about NerdWallet's high
standards for journalism by reading our
editorial guidelines.
