how's it going today guys so today we
are going to be talking about what you
should do if you are upside down on your
car loan or you're in a situation where
you owe more on your car than your car
is even worth unfortunately I'm gonna be
sharing some personal experience with
this because this is a mistake I made
myself and I'm gonna give you guys an
idea of what your options are as far as
what you should do if your upside down
on your car loan what options do you
even have so if you're in this situation
you have what is called negative equity
in that vehicle and maybe it's not a
vehicle maybe it's a camper maybe it's a
motorcycle who knows whatever it is
usually things recreational vehicles or
anything with an engine it's going to
like a house that you buy where
hopefully it's going to appreciate or at
least hold its value the second you
drive a car off the lot or a motorcycle
or an RV off the lot it's going to start
depreciating in value so when you're in
the situation you have negative equity
that's when you owe more than the asset
is worth and this most commonly happens
with cars or maybe things like boats or
other you know recreational vehicles and
things like that that people buy so how
does this happen in the first place
let's go ahead and focus on cars there's
a number of reasons why this happens and
it's important to understand why that is
because the number one thing you can do
in this situation is make sure it
doesn't happen again because the options
as far as getting out of this are really
not that great but the number one thing
you can do is figure out how to avoid
getting in this situation again in the
first place
number one the main thing that causes
this is people who buy a vehicle they
put $0 down and then you add that all
off the lot depreciation so on average
when you drive a vehicle off the lot it
automatically loses 10% of its value so
let's say you paid $20,000 for a car the
minute you drive it off that lot it's
now worth $18,000 so two thousand
dollars of value has just vanished at
that point meanwhile you put $0 down on
that vehicle you have no equity in that
vehicle you owe the full value of it and
it's already worth $2,000 less than you
paid for it
so I know a lot of people get involved
in those gimmicks where they say Oh
$0 down or no payments for the first
three month but all that's going to do
is put you behind as far as the payments
and paying that down and trying to
maintain the value of that vehicle as
far as what you have paid down on it
otherwise you get in the situation where
you in fact owe more than that car is
worth that's just gonna make that
situation worse
number two is paying too much for a
vehicle that's something that I did
myself I bought a car that was a very
flashy car I talked about this in some
of my other videos I bought a Subaru WRX
a used one from a dealer and I never
even went online and looked at the value
of that car so I just you know went out
there got a loan and I was able to get a
loan for this car and then after I
bought the car I did my research and I
realized that I had been raked over the
coals and I paid way too much for that
car so this is a mistake I've made
myself so if you pay too much for the
car in the first place or you have too
many options whether it be I don't know
leather seats or the sunroof or
navigation adding things like that are
just going to increase that rate of
depreciation for that vehicle and make
it so you're gonna owe a lot more money
than you would have if you didn't have
all those other bells and whistles
another thing is short term vehicle
ownership so this is people who buy a
car and then they say you know what I
want to sell this car in a year or
something like that you know you want to
make sure you're holding a vehicle for a
long time because the majority of that
depreciation takes place in the first
three years so if you want to get to a
point where you at least can break even
on that vehicle it's probably gonna take
four or five years if you have like a
five or six year term loan now I have
talked about in the past I'll link up
this video at the end it's a general
rule of thumb for buying a car and it's
definitely not a six year term loan it's
actually a four year term loan maximum
so I'm gonna link that up at the end if
you guys want to check that video out as
far as what you should do when you're
buying a car but when you have a very
long term loan and then you have short
term vehicle ownership where you only
have that car for a year or two you
basically are taking that majority of
the depreciation at once you're taking
the biggest hit on that vehicle than
anyone else will that actually goes
ahead and buys that vehicle so for
example the car that I Drive now the
list price for this car was $26,000 and
I bought it one year later with 6,000
miles on it for $18,000 so that's a
difference of $8,000
right there just by buying a
one-year-old car because the majority
that depreciation takes place in that
first year so that's one thing you can
do as well is not buy a brand new car
and then another thing that happens as
well as people may fall into that
gimmick of skipping payments I know a
lot of companies will say oh it's
Christmas go ahead and skip your payment
for this month and all that's going to
do is make it so that way that vehicle
is depreciating and you're not paying it
down in the meantime that's another way
people end up getting in trouble is by
skipping payments and not paying down
that loan at all not paying down that
principal so what do you do when you're
in the situation what do you do when you
can't afford to sell your car let's say
you're driving a car that you can't
afford but you can't afford to sell it
because you owe more than it's even
worth let's say you all 25,000 and the
car is only worth 20,000 what are you
supposed to do there so number one one
of the things you could do is just
refinance at a lower rate if you're a
young person and maybe you bought a
flashy car one of the easiest things you
can do is try to refinance go shopping
for a better car loan and usually if
you've been making your payments on time
for the last year or a couple of years
and you have good credit you should be
able to find a better interest rate
somewhere else especially being a young
person number two would be to sell
something else that you don't need in
order to try to pay down that car and
just get out from under it so I don't
know if you have other toys laying
around a motorcycle or a boat or
something you don't need another option
you have is to just sell something else
that you don't need and try to get that
vehicle paid down either try to pay it
off that way you're not you know behind
on it or just try to get out from under
it and buy something that is more
conservative that's not going to
depreciate as fast number three if you
have the means to do it you might as
well just recognize the loss now if you
can't afford your payment's then just
sell the car ideally to a private party
don't trade it back into the same dealer
but ideally sell the car private party
that it's going to be difficult because
you're gonna have to try to get a clean
title and that's also kind of a mess
because it's very difficult to sell a
car when you have a lien on the title so
if you have the means to pay off the car
yourself get a clean title and then sell
it private sale that is probably your
best option just to get out from under
it number four would be to trade it in
for an older or a simpler car maybe with
less bells and whistles
those added options but again I would
not go back to the same dealer because
it's going to be kind of like taking a
trip to one of those video game stores
where you buy a video game for $60 and a
week later you go to trade it in and
they say okay we'll give you $7 for and
you're like what sense does that make I
just paid 60 for it you're gonna have
that same experience with that car
dealer so I would at least go to a
different dealer and then number five
guys the final thing you can do here is
just make better decisions going forward
unfortunately this is a mistake that a
lot of people make I made this mistake
myself I lost ten thousand dollars in
the course of one year by buying an
expensive car and owning it in the short
term so I lost ten thousand dollars in
one year that's an insane amount of
money to lose but so many people
especially young people go through this
and I wouldn't beat yourself up over it
just use it as a learning experience and
if you guys want to learn more about how
to actually responsibly buy a car I'm
gonna link up that video at the end but
guys that is all I got for this video if
you enjoyed it please drop a like if
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uploads and as always I thank you for
taking the time to watch this video
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