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How’s it going today guys so today we are going to be talking about what you should do if you are upside down on your car loan or you’re in a situation where you owe more on your car than your car is even worth unfortunately i’m gonna be sharing some personal experience with this because this is a mistake i made myself and i’m gonna give you guys an idea of what
Your options are as far as what you should do if your upside down on your car loan what options do you even have so if you’re in this situation you have what is called negative equity in that vehicle and maybe it’s not a vehicle maybe it’s a camper maybe it’s a motorcycle who knows whatever it is usually things recreational vehicles or anything with an engine it’s
Going to depreciate in value with time it’s not like a house that you buy where hopefully it’s going to appreciate or at least hold its value the second you drive a car off the lot or a motorcycle or an rv off the lot it’s going to start depreciating in value so when you’re in the situation you have negative equity that’s when you owe more than the asset is worth
And this most commonly happens with cars or maybe things like boats or other you know recreational vehicles and things like that that people buy so how does this happen in the first place let’s go ahead and focus on cars there’s a number of reasons why this happens and it’s important to understand why that is because the number one thing you can do in this situation
Is make sure it doesn’t happen again because the options as far as getting out of this are really not that great but the number one thing you can do is figure out how to avoid getting in this situation again in the first place number one the main thing that causes this is people who buy a vehicle they put $0 down and then you add that all off the lot depreciation
So on average when you drive a vehicle off the lot it automatically loses 10% of its value so let’s say you paid $20,000 for a car the minute you drive it off that lot it’s now worth $18,000 so two thousand dollars of value has just vanished at that point meanwhile you put $0 down on that vehicle you have no equity in that vehicle you owe the full value of it and
It’s already worth $2,000 less than you paid for it so i know a lot of people get involved in those gimmicks where they say oh $0 down or no payments for the first three month but all that’s going to do is put you behind as far as the payments and paying that down and trying to maintain the value of that vehicle as far as what you have paid down on it otherwise
You get in the situation where you in fact owe more than that car is worth that’s just gonna make that situation worse number two is paying too much for a vehicle that’s something that i did myself i bought a car that was a very flashy car i talked about this in some of my other videos i bought a subaru wrx a used one from a dealer and i never even went online and
Looked at the value of that car so i just you know went out there got a loan and i was able to get a loan for this car and then after i bought the car i did my research and i realized that i had been raked over the coals and i paid way too much for that car so this is a mistake i’ve made myself so if you pay too much for the car in the first place or you have too
Many options whether it be i don’t know leather seats or the sunroof or navigation adding things like that are just going to increase that rate of depreciation for that vehicle and make it so you’re gonna owe a lot more money than you would have if you didn’t have all those other bells and whistles another thing is short term vehicle ownership so this is people who
Buy a car and then they say you know what i want to sell this car in a year or something like that you know you want to make sure you’re holding a vehicle for a long time because the majority of that depreciation takes place in the first three years so if you want to get to a point where you at least can break even on that vehicle it’s probably gonna take four or
Five years if you have like a five or six year term loan now i have talked about in the past i’ll link up this video at the end it’s a general rule of thumb for buying a car and it’s definitely not a six year term loan it’s actually a four year term loan maximum so i’m gonna link that up at the end if you guys want to check that video out as far as what you should
Do when you’re buying a car but when you have a very long term loan and then you have short term vehicle ownership where you only have that car for a year or two you basically are taking that majority of the depreciation at once you’re taking the biggest hit on that vehicle than anyone else will that actually goes ahead and buys that vehicle so for example the
Car that i drive now the list price for this car was $26,000 and i bought it one year later with 6,000 miles on it for $18,000 so that’s a difference of $8,000 right there just by buying a one-year-old car because the majority that depreciation takes place in that first year so that’s one thing you can do as well is not buy a brand new car and then another thing
That happens as well as people may fall into that gimmick of skipping payments i know a lot of companies will say oh it’s christmas go ahead and skip your payment for this month and all that’s going to do is make it so that way that vehicle is depreciating and you’re not paying it down in the meantime that’s another way people end up getting in trouble is by skipping
Payments and not paying down that loan at all not paying down that principal so what do you do when you’re in the situation what do you do when you can’t afford to sell your car let’s say you’re driving a car that you can’t afford but you can’t afford to sell it because you owe more than it’s even worth let’s say you all 25,000 and the car is only worth 20,000 what
Are you supposed to do there so number one one of the things you could do is just refinance at a lower rate if you’re a young person and maybe you bought a flashy car one of the easiest things you can do is try to refinance go shopping for a better car loan and usually if you’ve been making your payments on time for the last year or a couple of years and you have
Good credit you should be able to find a better interest rate somewhere else especially being a young person number two would be to sell something else that you don’t need in order to try to pay down that car and just get out from under it so i don’t know if you have other toys laying around a motorcycle or a boat or something you don’t need another option you
Have is to just sell something else that you don’t need and try to get that vehicle paid down either try to pay it off that way you’re not you know behind on it or just try to get out from under it and buy something that is more conservative that’s not going to depreciate as fast number three if you have the means to do it you might as well just recognize the loss
Now if you can’t afford your payment’s then just sell the car ideally to a private party don’t trade it back into the same dealer but ideally sell the car private party that it’s going to be difficult because you’re gonna have to try to get a clean title and that’s also kind of a mess because it’s very difficult to sell a car when you have a lien on the title so
If you have the means to pay off the car yourself get a clean title and then sell it private sale that is probably your best option just to get out from under it number four would be to trade it in for an older or a simpler car maybe with less bells and whistles those added options but again i would not go back to the same dealer because it’s going to be kind of
Like taking a trip to one of those video game stores where you buy a video game for $60 and a week later you go to trade it in and they say okay we’ll give you $7 for and you’re like what sense does that make i just paid 60 for it you’re gonna have that same experience with that car dealer so i would at least go to a different dealer and then number five guys the
Final thing you can do here is just make better decisions going forward unfortunately this is a mistake that a lot of people make i made this mistake myself i lost ten thousand dollars in the course of one year by buying an expensive car and owning it in the short term so i lost ten thousand dollars in one year that’s an insane amount of money to lose but so many
People especially young people go through this and i wouldn’t beat yourself up over it just use it as a learning experience and if you guys want to learn more about how to actually responsibly buy a car i’m gonna link up that video at the end but guys that is all i got for this video if you enjoyed it please drop a like if you’re new to my channel please consider
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Transcribed from video
UPSIDE DOWN CAR LOAN? (What to do…) By Ryan Scribner
