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Is Your Car Loan Underwater? – Know Your Options
It might sound odd to refer to car loans as “underwater,” but since we often hear the phrase “drowning in debt” it’s a fairly good analogy.
When you are underwater on a car loan you owe more than the vehicle is worth. In other words, if you wanted to sell or trade-in the car, you would have an outstanding balance on the car loan that you’d still be responsible for paying in most cases.
If you find yourself in this situation, you may need to speak to a lawyer for car loans. At Luftman, Heck & Associates LLP, we consult with clients who find themselves in financial distress, including underwater car loans. Our experienced Ohio debt-relief attorneys can help you understand your options when you find yourself upside down on a car loan or otherwise struggling with debts.
What are the Causes of Underwater Car Loans
Our consumer law attorneys have identified some factors contributing to the increasing number of consumers with underwater car loans. Here are a few ways you might end up owing more than your vehicle is worth:
- You have a low credit score (so interest is higher)
- You can’t put down a substantial down payment
- You rolled an existing car loan into another car loan
- Your car was totaled and you didn’t have Gap Insurance
- Your loan term was more than 48 months
How Can You Tell If Your Loan is Underwater
With internet resources such as Kelley Blue Book, Edmunds, and Auto Trader, it’s easy to look up your car’s value. These websites will ask for the make, model, year, and mileage of your car. You may also have the ability to assess the condition (wear and tear) and indicate any special features that could increase the vehicle’s value. This can give you a relatively accurate trade-in value.
After finding the value, you need to compare that to how much you owe. You should be able to either find that information on a statement mailed to you or on your loan company’s website. Usually, you can get your car loan balance online by registering your account and signing in to see your current balance.
If you owe less than the car is worth, congratulations! That is called “equity” and is fairly rare given how fast automobiles lose value (depreciate). On the other hand, if your debt and the value are close in amount, you likely have little concern.
When you may need help is if you see the amount owed is substantially higher than what the car is worth. For example, if your 2013 Toyota Rav 4 is worth $7,000, but you still owe $12,000 on the loan, you are underwater.
Does Being Underwater on a Car Loan Matter?
It depends. If you plan on keeping the car and paying off the loan. you’ll probably be fine. However, life can be messy. Any number of unplanned events could result in you being burdened with owing more on a car than it’s worth.
For instance, you might be unfortunate enough to experience a total loss accident in which your insurance won’t pay you the amount you still owe on your car debt. Instead, it makes you “whole” by giving you the value of the car. As a result, you will have to replace your vehicle, plus pay off the remaining loan balance.
In addition, you should consider serious car repairs. If your car won’t work without the repair, but the cost is more than the amount the car is worth, it may not make sense to fix it. But you are still left with the loan on it, plus the prospect of replacing the broken-down vehicle.
Another time when it matters is if your car is repossessed because you are behind in the payments. If it is sold by your lender, the proceeds less expenses are applied to the loan. When the value of the car is much less than what you owe, you are likely still liable for the remaining amount.
Our Ohio Consumer Law Attorneys Can Help
Being upside down on a car loan can be stressful, especially if you need another car and can’t afford to roll the amount you owe on one loan into another. You may be facing repossession or even considering bankruptcy.
Our Ohio consumer law attorneys can help explain your options. Depending on the circumstances, we may be able to unwind unfair dealings, investigate your bankruptcy options, or negotiate a higher insurance payment for total loss accidents.
Give Luftman, Heck & Associates LLP a call at (888) 726-3181 for a no-risk consultation about your car loan issues.