
While purchasing a new vehicle is exciting, it’s important not to bite off more than you can chew. Committing to car payments outside your budget can cause your loan to go underwater if you run into financial hardship — you’ll wind up owing more than the car is worth. Read on to learn more about underwater car loans and the steps you can take if your loan has turned upside-down.
Being “underwater” on a car loan means that you owe more on the car than it’s worth. For example, if you currently owe $20,000 on your car loan, but the vehicle’s market value is $15,000, you’re “underwater” or have a negative equity of $5,000.
While negative car loans may not be a huge issue if you plan to keep your car long-term, it can make selling or trading your vehicle difficult. If you sell the car, you’ll have to pay the difference between the loan and the sale price out of pocket. If you trade it in, the lender will add the remaining balance to your new loan and increase your payments.
As cars can depreciate rapidly, going underwater on a car loan is not uncommon. The most common reasons people end up with negative equity include the following:
If you’re underwater on your car loan, don’t panic. There are steps you can take to deal with your upside-down car loan and minimize the effects of your negative equity.
Before doing anything, determine how far underwater you are. You can search the National Automobile Dealers Association Guides to find the current market value of your car. Take this number and subtract your remaining loan balance to determine how much negative equity you have.
Now that you know how far underwater you are, you can determine the best course of action. Consider the following options:
If you’ve gone underwater on a car loan, you can take these steps to ensure it doesn’t happen again in the future:
Avoid going underwater on your car loan by purchasing an affordable vehicle from Hawthorne Auto Square. For over 25 years, we’ve helped Southern California residents find the car of their dreams at the most affordable prices. Our in-house financing programs ensure you’ll be approved no matter your credit score, income source, or previous bankruptcy. With payments as low as $150, you won’t have to worry about your loan turning upside-down. Contact us or visit our Los Angeles dealership to explore our inventory today.
Yes! The best way to get out of a negative equity car loan is to make as many payments as possible, as soon as possible. Putting a lump-sum payment on your loan will reduce your amount owing and help you get ahead of depreciation.
If you want to trade in a car with negative equity, it’s best to do it as soon as possible. The sooner you trade it in, the more money you’ll receive. Contact our team to learn more about the trade-in process at our Los Angeles dealership.
No, underwater car loans refer to cars purchased through financing. When you lease your vehicle, you don’t have to worry about depreciation, as you can return the vehicle after your lease is up. You can also do a car lease buyout and purchase the vehicle from the dealership.
It only takes a few minutes and won’t affect your credit.
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© 2025 Hawthorne Auto Square. All Rights Reserved. Website Designed by:
Ad Leverage | Privacy Policy | Terms of Service
License #91864