What Are Your Options If You're Underwater On Your Vehicle?
If you're itching to upgrade to a new vehicle or are tired of paying a monthly payment on one that seems to need constant repairs, you may be wondering about your options. Sinking more repair costs into a vehicle that isn't worth much doesn't usually make good financial sense, but you may not yet be ready to commit to a loan on a brand new vehicle. Fortunately, there are a few ways to get out from under an underwater auto loan without declaring bankruptcy or defaulting on your obligations. Read on to learn more about the options available to you if you're underwater on a vehicle loan.
Trade it In
Depending on your interest rate and current credit score, you may qualify for a much lower interest rate if you trade in your used vehicle for a brand-new one. Interest rates continue to bob along the bottom of their record lows and many customers with excellent, good, and even fair credit may qualify for lower interest rates than were available even just a few years ago. By reducing your interest rate, you'll likely reduce your total payment enough to more easily afford payments on a newer vehicle that hasn't yet depreciated enough to put you underwater.
Sell it to a Private Party
If you have a bit of cash in the bank and access to public transportation, it may be worthwhile for you to sell your current vehicle and use this (plus some savings) to purchase a reliable used vehicle to take its place. Doing so can usually get you out from underwater on a loan while not reducing your credit score or saddling you with potentially hard-to-afford debt. This isn't always a great option if your vehicle is your sole source of transportation and you rely on it to get to and from work, school, or to pick up your child, but those whose vehicle needs are less immediate may find it the most economical choice.
Refinance Your Loan
Just as taking out a new loan on a new-to-you vehicle can reduce your interest rate, so can refinancing your current loan. You may decide to refinance to reduce your current rate, pay off your existing loan more quickly, and take out a new loan on another vehicle. In other cases, you can refinance your loan and then trade in your vehicle for a newer one, getting a lower loan rate based on your refinance rate.
Getting rid of an underwater auto loan doesn't have to mean bringing thousands of dollars to the table or declaring bankruptcy. Often, you can use one or more of the above methods to pay your car or truck off sooner and upgrade to a newer, more reliable vehicle.