![]() ![]() In that situation, you have $4,000 in "negative equity." If you sell, not only would you have to give the lender the $10,000 you received, you'd also have to come up with another $4,000. Let's say you owe $14,000 on a car that's only worth $10,000. Because of that, the instant you sell it, your remaining loan balance is due. To your lender, it's also the collateral you pledged in case you don't keep up with your payments. Contact your lender for the car loan before the sale to get their sign-off.Is your car or truck worth less than what you owe on it? People in your situation are "upside down" or "underwater." It's a predicament that could make it harder to buy your next vehicle. Try to sell your car at higher than the market value: Although the simplest way to avoid an upside down car loan is to keep your loan balance low, you can also try to sell your vehicle through a private sale to a buyer who is willing to pay more than the market value, ideally at the wholesale price.For example, if you make $50,000 a year, set aside a down payment of $10,000, and are willing to agree to a 48-month loan, you can reasonably afford a car with total monthly costs of up to $417. ![]() Put 20% down, choose a loan term of four years, and ensure that your monthly vehicle costs (including loan payments, insurance, and maintenance) represent no more than 10% of your gross monthly income. One good rule of thumb is the 20/4/10 principle. Buy within your means: The best way to avoid an upside down car loan is to set a budget for your car and stick to it when car shopping.While a higher monthly payment may seem like a burden, it's worth the financial peace of mind if you can afford it. A 36-month loan is preferable to a 60-month loan, which is preferable to an 84-month loan. In general, choose the fastest repayment period possible. The longer you drag it out, the greater the difference in potential depreciation and value will be. Choose a shorter loan term: The sooner you pay back your car loan, the less likely you will be to go underwater on a car loan.For a $30,000 vehicle, plan to put down at least $6,000 to stay above water. ![]() That will keep your loan amount (and, consequently, your monthly payment and total loan costs) low so that you can pay off the loan more quickly.
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