What is an Upside Down Car Loan?

If you are a car owner there is a good chance that you are aware of what an upside down car loan is all about. Generally speaking, this is when you roll negative equity from one car into a loan for another. Is this a good idea? Probably not! But with that being said, you should consider all the details of an upside down car loan. After all, most lenders will let you work within this situation as long as your credit score is good enough.

Take this example for instance. You may owe $20,000 on a car that you have had for a few years. Unfortunately, the car itself is only worth $15,000 at this time. If you go to trade this car in, the new dealer will want to roll approximately $5,000 or upside down equity into your new car loan. This means that you will be starting off in the hole unless you have some money to put down on your new car.

Most lenders do not have any problem offering an upside down car loan. Of course, a lot of this has to do with the exact situation that you are in. If you have good credit and have proved that you can make your payments, this will not be that big of an issue.

All in all, an upside down car loan is nothing more than rolling negative equity from one loan to the next. Even though you will want to avoid this situation at all costs, there are times when consumers need to consider taking out an upside down car loan.