Negative equity occurs the loan is greater than the value of the vehicle. Trying to refinance a car with this is generally only possible if you have good credit. In other situations, institutions aren’t willing to explore car loan options where the vehicle is worth less than the loan. This makes sense as such a loan carries greater risk with the person more likely to default.
While this situation is uncommon, knowing how to refinance a car with negative equity is extremely useful.
The first thing when you're trying to refinance a car is establishing its price. You can obtain this from the Kelly Blue Book, which lists the values of all vehicles. There are other books from professional organizations, such as National Automobile Dealers Association, that also offer values for vehicles. These values will all vary slightly; come up with an average value from them. Look at other sources, too, such as the prices similar vehicles are selling for on Internet auction sites. Don't be swayed by the prices dealers are asking; there's often a large gap between asking and selling price.
It's vital to know your credit rating when trying to refinance a car. Apply to one of the credit agencies and you'll be able to find your credit rating. Clean up your credit if necessary. If there are discrepancies in your credit record, clear these up and query everything that doesn't seem right. This will not only help when you apply for this loan but for all future loans.
Applying for a Loan
Start by looking for a good car loan interest rate. This might be at your bank or possibly with a credit union (you'll need to become a member of the credit union in order to obtain a loan). Credit unions often have preferential rates that can result in great savings over the life of the loan. By looking around you might be able to come up with a much better rate than you're currently paying. Be aware that if you're trying to refinance a car with negative equity, you might not receive the lowest interest rate as the institution will see this as a riskier loan.
Be aware of the conditions attached to the loan, such as early payment penalties or excessive late fees. Assess these before you agree to taking out the loan. If you're unhappy with the conditions, refuse the loan and apply for another at a different institution. With negative equity you're not always in the strongest bargaining position, but angle for the very best loan you can find.
Most lenders have a policy of deferring payments for 30 days to give you a chance to catch up with payments. In an ordinary loan extension, the lender will take the payments you have missed and add them to the end of your loan time period. This will extend your loan and give you a short period of time in between where you can get your finances in order. Please note that not all lenders have loan extension plans.
Most lenders will work with the customer to ensure they make their payments on time. You can carry out an auto loan refinance deal to ensure you pay off your car loan. But they will want to know the reason for the inability to pay.
Take time to determine the best loans—the higher your credit rating, the better your chance of obtaining one. Assemble all your documents before applying and supply them.