EchoBay Expert: The loan on my Ford Mustang is two years old and I'm still upside down in it. I want to buy the new Mustang model this year but don't want to keep creating bigger payments. How can I get out of my upside down car loan and how can I prevent the same thing from happening in my new loan? Thanks for answering.
Loyal Reader: Getting out of an upside down car loan can be a tricky endeavor. If you have financed the car at a high interest rate, you may be able to refinance at a lower rate and over time, right yourself in the loan. Of course, this would entail delaying the purchase of the new car. If you must get a new car now, sell the car yourself rather than trading it in.
You will almost always get more for your car when you sell it yourself. When you buy your new car, there are a few tips you can follow to make sure you don't end up in another upside down car loan.
First, try to put down at least 20% when you buy a new car. Cars can lose as much as 20% of their value as soon as you drive one off the dealers lot. If you haven't made a sizeable down payment, you could be in an upside down car loan from day one.
Second, always make sure you take out the shortest-term loan you can afford. If you drag your loan payment out more than five years, you are almost guaranteed an upside down car loan. If you must finance for more than five years to afford the car, you need to be looking at a less expensive car not a longer term.
When you do buy a new car, be sure to payoff your current car first or if you are trading your old vehicle, be sure the trade value is more than your payoff amount. You should not be rolling debt from your old vehicle into your new loan.
Finally, you can buy a used car. Because of the massive deprecation in the first year of owning a new car, buying used may be your answer. By doing this, you are buying after this depreciation has occurred. It can be difficult to get out of an upside down car loan but it is possible with a little patience.