Upside Down Car Loan in Canada: 5 Things You Can Do Next

Nobody wants to be upside down on a car loan but it isn’t a big deal unless you’re planning to sell the car or trade it in. Most new car purchases will involve being upside down for a little while but then things quickly even out. If your situation has changed and you need to do something about it, we have some actionable ways you can leave an upside down car loan in Cambridge

 

Being upside down means being in negative equity. Where the outstanding amount on the loan is higher than the current value of the car. This happens mainly on new cars when depreciation lowers the value while your car payments have yet to catch up.

 

Options When in an Upside Down Car Loan

If you’re keeping the car, being upside down doesn’t matter as it will even out over time. If you feel you want to return to positive equity faster, you have a few ways to do that.

 

1. Increase Your Monthly Payment

The first thing you can do to leave an upside down car loan is to increase your monthly payment if you can afford it. This can help you get out from under the loan. Not all loans will allow you to overpay but it’s worth asking to see if you can.

 

2. Lump Sum Payments

If you get regular bonuses or investment income, your car loan may allow you to make lump sum overpayments to help cover the loan. These will usually be several hundred or a couple of thousand dollars at a time but they can make a significant difference to your loan.

 

Just make sure you specify the payment to come off the principal, the amount you borrowed rather than interest!

 

3. Refinance the Car Loan

Depending on how far into the loan you are, you could consider refinancing. This will depend on how much you have paid off, how much the car is worth, whether you have any early repayment penalties on your current loan and your credit score but it is possible.

 

Refinancing won’t work in every situation but it can work for some. Typically, you go upside down for the first year of an auto loan on a new car. That’s usually too early for refinancing. If you’re behind or in negative equity for another reason, refinancing is a viable option.

 

4. Sell the Car

If your  car loan is for a weekend or second car, you could always sell it. This is less than ideal as you will have to top up the loan settlement out of your own pocket but it can alleviate the situation if really necessary.

 

Selling the car isn’t always viable or possible but in situations where it is, it can be a quick getaway from the loan.

 

5. Do Nothing

Keeping the car is also a way out of negative equity. Much will depend on your situation and why you’re upside down and why you want to get out of it. Negative equity is only an issue if you need to sell or dispose of the car for whatever reason.

 

If you don’t need to do that, it really isn’t an issue. The longer you pay the loan, the more of the principal you pay off. This will even things out in short order.

 

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