You are upside-down, or underwater, on your car loan when you owe more than your vehicle is worth. This does not immediately spell trouble, however it may result in less flexibility that is financial security.
You face two major risks: you owe — and, if your situation changes and you need to sell your car, you’ll do so at a loss if you get into an accident, your insurance will generally cover the damage only up to the value of the car — not how much. The essential difference between the car’s value in addition to loan quantity will be your negative equity.
Most useful Options If You’re Upside-Down:
1. Drive-Through The Loan
Until you either own it outright or you’re back to owing what the car is worth (or less) if you can, the best move is to simply keep your car and finish the payments.
That it’s totaled if you’re concerned about insurance coverage in the meantime, you can purchase gap insurance, which covers the difference between the value of a car and what you owe on the vehicle in the event. Continue reading