The Expert Podcast

So here we go again with more news on upside-down car loans or high-payment, high-balance car loans. This article came out just about a month ago, at the end of January, and it says people owe more than ever on upside-down car loans. This is from USA Today—great article! We’ll talk about how to get out of these car loans here at the end of the call. So if you're in a position where you have a high car loan or are upside down, wait until the end to take a look at options for extracting yourself from that loan without having to do a repossession.

The article goes on to say a number of consumers are trading in cars that are worth less than they owe—sometimes $7,000 in negative equity. Negative equity used to be high if it was $3,000 or $4,000, but now $7,000 is a big deal. If you're upside down in a car loan, it means you have to take on more debt on the new car because you have to roll that over to the next car. Big, big piece of news! You're not alone if your car is underwater—one out of four trade-ins are underwater or upside down.

That’s a big deal—one of every four people who have a vehicle they're looking to trade in is out of equity. This hurts when you're trying to get into a different vehicle that may be more appropriate for your daily use. Maybe you have a car loan that's $700, $800, or even $900, and you need to get it down to $500. You can't do it if you're upside down and just flat trade it in.

But what you can do is a car short sale. A car short sale is when you file a package of documents with your lienholder, and our website will give you instructions on how to do that. This process allows them to accept a lower trade-in value or lower sale value and clear out the loan balance so your title is clear. This way, you can trade it in and get out from underneath that car. It’s a very positive way to extricate yourself from that payment.

Every lender has different rules on how they do it. It’s different from doing a voluntary repossession, which is very detrimental because they can sell it for even less and stick you with the difference. With a car short sale, whatever happens to that difference in value is negotiated. Maybe they waive it, maybe they just make you pay a little, or maybe they set up small payments. Either way, it's different from having a lump sum appear on your credit report, showing that you owe a huge amount, and then having it deducted from your paycheck.

Take a look at a car short sale if you need to get out from under a car that you can’t afford. Don’t overlook that opportunity to get into a vehicle that's more appropriate for your use or has a better payment that fits your budget.

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