How To Refinance Your Upside-down Car Loan (2024 Guide) (2024)

An upside-down car loan occurs when you owe more money on the loan than your vehicle is worth. For example, your car loan would be upside down if your vehicle’s value were $15,000 but your loan balance were $20,000. In this case, you would have negative equity of $5,000.

Having an upside-down car loan doesn’t have to be stressful. Drivers who plan on keeping their cars can make regular monthly payments on their loans until they’re paid off. Nothing changes with the lender. But if you want to be right side up on your loan, you’ll have to decide whether to pay it off over time or in a lump sum, refinance or trade in your vehicle.

One of the best options for getting out of an upside-down car loan is refinancing your auto loan. This can also help you lower your interest rate and monthly car payment.

Below, we’ll provide in-depth information on the steps you need to take to get positive on your upside-down car loan and get auto loan refinancing.

Step 1: Calculate How Much Negative Equity Is on Your Loan

The first step in refinancing your upside-down car loan is understanding how much negative equity there is. To do this, you’ll need to calculate the value of your car and the amount remaining on your loan. You can find your car’s trade-in and private sale values through sites like Kelley Blue Book or Edmunds.

To view how much you owe on your car, log into your loan account or call your lender to ask for the payoff amount.

Step 2: Talk to Your Lender

Before you apply for an auto loan refinance, reach out to your lender to see if it charges prepayment penalties and if it offers options to help fight the negative equity on your car loan. Your lender may allow you to make more frequent payments or put your payments toward the principal. The overall goal would be to cut down on negative equity and help you pay your loan off faster.

Step 3: Check Auto Refinance Rates

If your lender’s unable to help you with your upside-down car loan, consider auto refinancing if you have good credit. This could help you get a new car loan with a lower interest rate and lower monthly payment, letting you pay the negative equity off faster.

You can start by reaching out to your bank or credit union to see if you would qualify for auto refinancing based on your financial situation and remaining loan balance. After this, speak with a few third-party lenders to gauge interest rates and find the best deal.

Source: Capital One

Step 4: Get a New Loan

Once your research is done and you decide auto refinance is the best option for you, sign for the new loan you chose. Most lenders will let their offers stand for up to 60 days, so you have until then to decide.

Those who opt against auto refinance or don’t qualify still have other options. These include:

• Paying their current car loan off in a lump sum
• Paying their loan off over time
• Selling their vehicle to a private party
• Trading their car in
• Canceling add-ons

Upside-down car loans frequently occur as a result of the terms chosen when a new car is purchased. Here are some of the most common reasons:

Little or no Money Down

Your vehicle loses value after you drive it off the lot, instantly resulting in an upside-down car loan if you didn’t put money down. With no down payment, you’ll also finance the taxes, licensing, registration and dealership fees. This can make your amount financed more than the value of the vehicle.

A Longer Loan Term

When you purchase a car, the dealership may offer you a longer loan term. Choosing a loan with a longer term spreads your loan payments out, causing your vehicle to lose its value faster than you can pay down what you owe. With long-term options like an 84-month auto loan, you’ll also pay more in interest than you would with shorter term lengths.

Overpriced Cars

Shop for similar makes and models at different dealerships to find the best deal. If you purchase your car at the first opportunity without doing research, you could end up paying more than it’s worth.

Unnecessary Add-ons

Dealerships may offer add-ons when you purchase your vehicle, such as extended warranties, gap insurance and appearance packages. Each additional purchase you make takes away from the money you could put toward paying your car loan off.

MyAutoloan: Best Low-Rate Option

Unlike many others in the industry, myAutoloan functions as an online marketplace that lets you compare offers from lenders in one place. Borrowers with good credit can find annual percentage rates (APRs) for auto loan refinancing as low as 2.49% for a loan term of 36 months or less. The loan platform also provides services for those with less than ideal credit, letting borrowers with FICO credit scores of 575 and above apply for refinancing.

The company has an A+ rating and accreditation from the Better Business Bureau (BBB). Customers on Trustpilot give myAutoloan a 4.2-star rating out of 5.0.

Read more: myAutoloan review

Auto Approve: Top Choice for Refinancing

Auto Approve is an industry leader in refinancing auto loans. With its vast network of lenders, it provides refinancing for cars, trucks and SUVs, as well as motorcycles, ATVs, boats and RVs. Borrowers with good credit may qualify for APRs as low as 2.94%.

Auto Approve has a stellar reputation as a financial institution. The company is accredited by the BBB and has an A rating from the organization.

Read more: Auto Approve review

Because consumers rely on us to provide objective and accurate information, we created a comprehensive rating system to formulate our rankings of the best auto loan companies. We collected data on dozens of loan providers to grade the companies on a wide range of ranking factors. The end result was an overall rating for each provider, with the companies that scored the most points topping the list.

Here are the factors our ratings take into account:

• Reputation (30% of total score): Our research team considered ratings from industry experts and each lender’s years in business when giving this score.
• Availability (20% of total score): Companies that cover a variety of circ*mstances are more likely to meet borrowers’ needs.
• Loan Details (15% of total score): We considered the types of loans, term lengths and loan amounts that are available from each lender to determine this score.
• Rates (25% of total score): Auto loan providers with low APRs scored highest in this category. Available discounts were also taken into account.
• Customer Experience (10% of total score): This score is based on customer satisfaction ratings and transparency. We also considered the responsiveness and helpfulness of each lender’s customer service team.

*Data accurate at time of publication.