You may or may not have heard this term before but it is important you understand the concept before you sign you name to a loan document. An upside down car loan is one in which the loan amount is greater than the amount the car could be sold for. This means, if your loan is upside down and you sell your car, the only way to complete the loan transaction is to pay more money to the loan maker. The loan maker is the bank you have the loan with or some other financing company.
Most new car loans with very small down payments are upside down as soon as you drive off the lot. It is not uncommon for a car to lose several thousand dollars in value when you sign the loan papers because the car is no longer new but is now used. Thus, you are valuing a used car now instead of a new one.
Getting out of an upside down car loan is never fun. None of the options are really that great and some can have long term consequences. The first option is to find someone to buy the car who will pay you the amount of the loan. Since the car is not worth the face value of the loan this will probably take some untruth to make it happen. The second way is to just let the car get repossessed. This is not a good option because it gives you bad credit and makes it much harder to get anther loan in the future. Car finance with bad credit is never an easy exercise.
Another option is to find some extra cash somewhere to pay off the loan. Maybe you can find something else to sell in order have enough money to pay off the loan after you have sold the car. Or, you could make the payments on the car until such time as the value and the loan amount of the car are in sync. At this point you could sell the car and pay off the loan and move on.
