Auto Loans and Financing
Money Management

If you bought a car with high interest and currently you have an upside down loan would it be a good idea to trade the car in for a cheaper newer model with a lot fewer miles?


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2015-07-16 19:21:41
2015-07-16 19:21:41

The problem with many of the auto loans is that you get "upside down" in them quite soon. Even if you buy a newer vehicle, when you trade in your existing vehicle you will be upside down almost immediately. Pay off what you have, drive it as long as it keeps serving you well. Once it is paid off you will have some equity to put down on your next vehicle. Then you should only buy something with a 2 or 3 year note. Anything longer will put you upside down. If you can't afford the shorter note on the vehicle, don't buy it; it just means you cant afford the vehicle. The only people who really make money on those deals is the finance company. You're giving a lot of money to someone so that you can buy a vehicle that you can't really aford.

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As long as we are talking about the loan being upside down, not the car:Yes you can trade it,BUTIt is not recommended as you will pay a large penalty in extra interest.

If a person is upside down on a loan, it means that they owe more on the loan than the value of the thing that is collateral for the loan.Another word for being upside down is being "underwater."If you are upside down on your loan, you have "negative equity" on the collateral.When a borrower is upside down, the loan is "undersecured," meaning that the security interest (the value of the collateral) is smaller than the loan.

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I recommend you not do this! This cost a lot in extra interest on your financing!In North America this is possible as long as only the financing is upside down. If the car is or has been upside down it is very difficult.The problem is you take on the finance rate.Go to a dealer, tell the truth about what you owe. They will organize up financing that pays off your old car and buys a new car.

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