How To Get Out Of an Upside Down Car Loan in Canada

How To Get Out Of an Upside Down Car Loan in Canada

Posted on August 12, 2022

There’s nothing wrong with being upside down in an auto loan but not everyone is comfortable with the situation. It can also complicate matters if you need to sell your car or settle the loan early.

Our Halton auto loans team outlines a few methods to get out from an upside down auto loan. All these methods will work for most situations.

Upside down auto loans in Halton

An upside down auto loan is when the car’s value is worth less than the loan outstanding on it. It’s also called negative equity.

When you buy a new car, there is an initial burst of depreciation and then the amount of value the car loses evens out. If you didn’t use a down payment or your car depreciated a lot, you could be upside down for a year or two while the loan catches up.

There’s nothing wrong with that if you’re planning to keep the car and the loan. It only becomes an issue if you want a new car or new auto loan.

Then you’ll need to use one of these methods to get out from under it.

Regular auto loan overpayments

Most Halton auto loans we arrange allow overpayments throughout the term. We often recommend this to people wo want to pay off their loan early and it can work for upside down loans too.

Check with your lender that you can make overpayments and specify all payments should be taken off the loan principal and not the interest.

Then simply increase the amount you pay per month by rounding up or paying fortnightly.

Lump sum overpayment

You can also make a single lump sum overpayment to settle or even out the loan.

Most lenders will accept lump sum overpayments and will take it off the loan principal to even things out. The payment will need to be several hundred of couple of thousand but the exact amount is up to you.

Wait it out

Unless you absolutely need to change the car or the loan, you’re probably better off just waiting it out. There’s actually nothing wrong with being upside down as things will even out eventually. It’s only when you need to change your situation do complications arise.

Waiting a year or two until the loan is less than the car’s value doesn’t cost extra, doesn’t involve you emptying your savings and means you can continue living normally without any impact.

Of course, if your situation has changed and you need to change things up you can.

Refinance the auto loan

If it’s something to do with the loan you need to change, you can refinance it anytime you want. You will need to top up the loan settlement to cover the full cost of the loan but you otherwise, you can refinance at any time.

You could borrow more on the future loan to cover the full cost of the old loan or borrow less and pay the rest from savings, it’s entirely up to you.

It isn’t the cleanest way to settle your finances but if changes need to be made, this is one way to do it.

Sell the car

If the situation is more dire, you can also sell the car to pay off the loan. Again, you’ll need to top it up with cash to fully settle the loan but you can sell a car with outstanding finance if you need to.

You’ll need to sell your car to a dealership to make it happen but anything is possible if you really need it to happen.

We will use all our skill and experience to deliver the lowest possible Halton auto loan rates, guaranteed. Contact Car Nation Canada Direct to learn how we can help.

For any questions or concerns, please don't hesitate to contact us here!

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