Want To Get Rid of Your Car but Still Owe More Than It’s Worth? 5 Things You Can Do To Come Out Even

Maybe you don’t need your car anymore because you moved to an area where public transportation is more convenient and cheaper. Or maybe you want to switch it for another one, or your new job is giving you a company vehicle. And perhaps the reason is that you just can’t afford the payments anymore.

Whatever the justification might be, experts said that if you want to get rid of your car but still owe more than it’s worth, there are steps you should take to avoid putting you in a worse financial situation.

You are watching: Want To Get Rid of Your Car but Still Owe More Than It’s Worth? 5 Things You Can Do To Come Out Even

“When the value of your car depreciates, and you find yourself owing more on your auto loan than the car is worth, it can be a challenging situation to navigate,” said Joyce Ann Gutierrez, automotive expert at 4WheelOnline. “However, there are a few options and tips that you can consider to help alleviate this financial burden.”

Do You Owe More on Your Auto Loan Than Your Car Is Worth?

As Credit Karma explained, going “upside down” or “underwater” on your auto loan happens when the market value of your vehicle is less than the amount you owe.

“For example, say you still owe $30,000 on a car that you’d like to sell or trade in, but the most you’ve been offered is $20,000. That’s $10,000 in negative equity you’ll have to deal with,” according to Credit Karma.

Credit Karma added that car owners who are underwater may be torn between two undesirable options: making regular payments while potentially losing equity or selling the car and eating the loss. Yet, it added that there can be other options.

Assess the Value of Your Car

Gutierrez explained that first, it’s essential to reassess the current market value of your car.

See more : What you need to know

“Use online resources such as Kelley Blue Book or NADA [National Automobile Dealers Association] Guides to determine its current worth. It will give you a clear understanding of how much you owe versus the vehicle’s actual value,” she said.

Find Out the ‘Payoff Amount’ on Your Existing Auto Loan

According to the Consumer Financial Protection Bureau (CFPB), this is the amount remaining on your existing loan, and it might be different from the outstanding balance listed on your statement or coupon book because of the way interest is calculated, any outstanding late fees or charges, or for another reason.

So, for example, you learn that the market value of your car is $15,000 — if you owe $20,000 on your loan, then you are $5,000 underwater. In other words, you have $5,000 in negative equity.

“Before you seriously consider selling your car or refinancing your auto loan, ask yourself if it’s within your financial means to pay down that negative equity. If you’re able to pay a lump sum without taking on more debt or jeopardizing your other assets, this is likely your best option,” Credit Karma added.

Refinance Your Loan

If you’re considering refinancing your auto loan, speak with your lender about extending the loan term or negotiating for lower interest rates, said Gutierrez.

“It could lower your monthly payments and make it more manageable to pay off the remaining balance over time,” she added.

Yet, it’s important to note that while you may be tempted to take lower monthly payments, this could lead to more negative equity.

See more : 2024 Ford Bronco Sport A Comprehensive Guide for Chicago Residents

“Cars tend to depreciate in value rather quickly, losing about 20% of their value in the first year and up to around 50% to 60% after five years, so the faster you’re able to pay off the loan, the less likely you are to go underwater again,” according to Credit Karma.

To put this in context, the average monthly payments are continuing to increase as interest rates rise — in the first quarter of 2023, the average monthly payment for a new vehicle increased to $725 from $650 the previous year, and used vehicles came in at $516 this quarter, up from $505, according to Edmunds.

What’s more, 16.8% of consumers who financed a new vehicle in that quarter have a monthly payment of $1,000 or more — a new all-time high, according to Edmunds — compared to 10.3% in the first quarter of 2022 and 6.2% in the first quarter of 2021.

Just Sell It

You can also explore selling options to help bridge the gap between what you owe and what the car is worth. Private selling may be an option, if you can find a buyer willing to pay a higher price for your vehicle, said Gutierrez.

Trade It

Alternatively, trading in your car at a dealership could provide relief by applying its trade-in value toward a new vehicle purchase or lease.

Yet, it’s important to keep in mind that while dealers occasionally have vehicle trade-in offers, if the dealer promises to pay off your negative equity, make sure it’s not included in your new financing or your final loan contract, according to the CFPB.

“Before finalizing a loan, read the contract carefully, and don’t sign anything until you understand and are comfortable with the terms,” the CFPB added.

More From GOBankingRates