{"id":821989,"date":"2019-12-10T09:47:30","date_gmt":"2019-12-10T14:47:30","guid":{"rendered":"https:\/\/www.finder.com\/ca\/?p=821989"},"modified":"2026-02-22T16:11:03","modified_gmt":"2026-02-22T21:11:03","slug":"upside-down-car-loan","status":"publish","type":"post","link":"https:\/\/www.finder.com\/ca\/car-loans\/upside-down-car-loan","title":{"rendered":"5 ways to get out of an upside-down car loan"},"content":{"rendered":"

An upside-down, or negative equity, car loan is when your loan balance is worth more than the value of your car. So if you owe $11,000 on your car loan, but the market value of your car is $9,500, than the loan would be upside down by $1,500. You could also say that you have $1,500 worth of negative equity.<\/p>

Having an upside-down car loan can be risky, especially since standard insurance policies only cover up to the value of your car. But there are a few ways to turn around negative equity \u2014 or get out of an upside-down car loan altogether.<\/p>

How does a car loan become upside down?<\/h3>

A car loan can go upside down in several situations. Financing a new car over a long term is one common way \u2014 especially if that term is longer than 60 months. Having a high interest rate, foregoing a down payment or buying a car that\u2019s out of your budget can also lead to an upside-down car loan. And rolling over a previous loan during a trade-in also puts your loan at risk of becoming upside down.<\/p>

5 ways to get out of an upside-loan<\/h3>
  1. Make extra repayments<\/a><\/li>
  2. Refinance with another lender<\/a><\/li>
  3. Sell your car<\/a><\/li>
  4. Trade it in for a less expensive car<\/a><\/li>
  5. Consider credit counseling<\/a><\/li><\/ol>

    1. Make extra repayments<\/h3>

    One of the simplest ways to get out of an upside-down car loan is to make extra repayments. This reduces your balance until car loan is right-side-up again and<\/em> gets you out of debt faster.<\/p>

    Before you get started, calculate your negative equity \u2014 the difference between your loan balance and how much your car is worth. Negative equity gives you an idea of how much you need to repay to flip your loan right-side up and how long it\u2019ll take.<\/p>

    Watch out for early prepayment penalties<\/h4>

    Some lenders charge a penalty when you repay your loan early. Not only does this mean you won\u2019t be able to save on interest, but it\u2019ll also cost you more to get above water. Reach out to your lender to find out its prepayment policy before you start making extra payments.<\/p><\/div><\/article>

    2. Refinance with another lender<\/h3>

    Refinancing your car loan<\/a> involves trading in your loan for different loan, ideally with more favorable rates and terms. Refinancing for a shorter term could also be a good way to pay off your loan early if your lender charges prepayment penalties. Refinancing at a lower interest rate can help you get out of an upside-down car loan by lowering the total amount you\u2019ll pay towards your car loan overall.<\/p>

    Generally, you need to have good to excellent credit and a low debt-to-income (DTI) ratio to get the best deal on refinancing. Refinancing also might not be the best choice if you have a large amount of negative equity, since some lenders have maximum loan-to-value (LTV) ratios for refinancing applicants.<\/p>

    Compare auto refinancing offers<\/h4>
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