4 Ways You Can Get Back to the Surface When Yoked To an “Underwater” Loan


Is the car loan you owe more than the value of the car itself? The auto industry terms this as going “upside down” or simply, “underwater”.

For instance, if you owe $30,000 for a car that’s worth $20,000, you are $10,000 in negative equity to deal with. That can spell huge problems for you.

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When you have negative equity on your car loan, things are more likely to head south. It gets even worse because a car is a liability. It depreciates in value so fast unlike property. So, what do you do when you are “upside-down” in a car loan?

Sadly, there is no fixed solution when you are trapped in this financial quagmire. When you have negative equity on a car loan there are two things you can do: Either you sell your car and succumb to a loss, or refinance your auto loan and risk losing equity on your car.

Whichever way you look at it, both options are undesirable. But they’re not the only options you have at the table, though. While repaying the car loan is unavoidable, there are other surefire ways to get out of an “underwater” situation when knee-deep in negative equity.

1. Calculate your negative equity

How deep are you “underwater”? Calculating your negative equity for starters will help you pinpoint exactly how far deep you are.

The calculations are simple. Find out the value of your car then subtract this amount from the total loan amount you owe. Your answer is the negative equity in question.

If you’re not sure about the real value of your car, make use of the Federal Trade Commission suggestion of looking up your car’s real worth from:

  • Kelly Blue Book
  • Edmunds
  • Or, National Automobile Dealers Association Guides

You’re not limited to these three resources. You are at liberty to make use of other sources at your disposal to determine your car’s value.

Once you know the actual value of your vehicle and have calculated the negative equity, it is important to ask yourself whether it is financially prudent to pay it down. If so, how do you plan to pay it down? If it is within your means to pay in a lump sum, the better for you (that’s assuming your actions won’t jeopardize your financial situation or other assets in the process).

2. Give your lender a call. Reach out to them

If it is financially impossible to pay down your negative equity in one fell swoop, fret not. You can consider giving your lender a call or reaching out to them in a bid to request for any other options on the table to turn around your “upside-down” loan

If there’s a way around it, got for it already. If there is none don’t hesitate to ask. You never know what may transpire from you’re asking.

You could float the idea or suggestion to pay little amounts of money toward the principal amount every month as a way to get out of the underwater loan faster – lowering the balance of the loan that dares outpace your car’s value.

If you can keep your car while paying off your auto loan, you can make a good situation out of a bad one. This is a dream for many car owners with an upside loan. You, however, still need to cover your negative equity even as you plan to lower your principal balance.

3. Consider taking a new loan

If your lender is unwilling to save you from the murky waters of your current car loan, taking up a new loan can also be a wise move from www.realisticloans.com . That is if you have a good credit history or rating. This move can help you refinance your auto loan at low interest rates.

When you plan to pay down an underwater loan by taking up a new loan, it is essential to consider terms of the loan first.

If the loan requires you to pay low monthly rates, steer clear of it. It may extend the life of the loan forcing you to get into more negative equity in the long run.

Remember a car is a liability that loses its value very fast, over time. Within the first year, a car will lose 20% of its original value. And after 5 years, 50% to 60% of its original value will have depreciated. It’s therefore important to pay off the loan fast lest it drags you underwater.

4. Get rid of your vehicle

If you’ve run out of options the only way left is to get rid of your car, for good.

You can easily stay above water on your loan if you can get rid of the new car and remain with the old one, according to Edmunds. Perhaps not a wise move but it’s the best strategy to help you get out of an upside loan while ensuring your car doesn’t lose its equity.

If you’re planning to sell your vehicle, ensure to do so at a higher price to cover the cost of your loan balance. You can choose to improve on the interior and exterior of the vehicle to attract prospective buyers willing to purchase the vehicle at your considered rate.

If you have no money for any improvements, you can wash or wax it for a cleaner and neat look. A good wash always does magic on a car’s outlook.

Sometimes you can choose to trade-in your old vehicle for a new one, but trade-ins will only heighten the risk of going “upside-down” again.

Why? Because they don’t bring in more than privately selling your vehicle. Then again you still have to pay off your current auto loan. In other words, you’re better off not trading in your vehicle for a new one. Though it’s tempting since it’s a hassle-free, time-saving process.

There is also the option of leasing out your vehicle. You can choose to go this way as you don’t have to worry about the resale value of your vehicle eventually. But whatever option you choose it doesn’t remove the fact that you have to pay off your negative equity.


There is nothing more stressing than trying to escape an upside loan with negative equity. It is futile, in fact. The best way is to avoid getting impulsive when you make a decision to ensnare yourself from the jaws of an auto loan.

It is important to consider all the options you have at hand before you jump on a quick but costly solution on how best to get out of your upside loan.

This could mean calculating your negative equity first before you start paying it down. This will help you determine the actual worth or value of your car. If this doesn’t work out, you can always reach out to your lender to set up an alternative option.

Alternatively, you can consider taking up a new loan to help finance your upside loan. But you have to consider a loan with low-interest rates lest you find yourself with more negative equity. And if all fails, you can always consider getting rid of the car for good.

Whatever option you decide on, don’t forget your utmost goal is to turn around your underwater loan. So pick an option that saves you time and money.