What Does it Mean to be Underwater?

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Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


, - May 11, 2018

People often use words that have a double meaning, especially when it comes to cars. One of these is “underwater,” which means you owe more on your car loan than the vehicle you’re buying is worth.

Underwater – No Place to be for a Sale

Being underwater isn’t where anyone wants to be when it comes to their vehicle, but the lack of value only really hurts when it’s time to sell or trade in your car. Typically, selling your vehicle privately will get you a bigger profit than taking it to a dealership. But no matter where you sell your car, you’ll have to pay off the loan to complete the sale.

Depending on what state you live in, you and the buyer will typically visit the lender together, pay the loan off, and the lender will sign the title over to the new owner. Or, if you don’t visit the lender together, they’ll release the title to you after they’re paid and you can sign it over to the buyer.

Trading in an Underwater Vehicle

When you’re not just selling the vehicle, but looking to replace it with a newer or different car, it helps to have equity in the trade-in. With equity, you’ll be able to use any amount left over after you paid off the loan as a down payment on the new vehicle. If you’re underwater, you’ll once again be stuck paying out of pocket, plus, you may still be required to have a down payment, as well.

In some cases, a dealer may allow you to roll over your negative equity into another loan. Depending on the amount, this is usually only offered to customers with higher credit scores. Be warned though, rolling over that negative equity will increase the amount of your new loan and cost you more in interest charges over the term of your loan.

How Do I Know if My Car has Equity?

To determine whether your car has equity, you’ll need to know the payoff amount on your loan, and the approximate value of your vehicle. You can research the approximate value by using valuation sites such as NADA.com.

Remember though, plugging variables into a website may not be as accurate as an appraisal at a dealership. They take into account things such as mileage, age, condition and market value, and will vary depending on who’s appraising it. So, take numbers you get online for what they’re intended to be – an estimate.

To get the best value of your vehicle, it’s a good idea to get at least three different appraisals. Make sure at least one is from a dealership of the same brand as your car.

Finding the Best Dealer for Your Needs

Whether your vehicle has equity or is underwater, the fact remains that if you’re struggling with bad credit, you’ll need a lender that can work with your situation. Not all lenders can. Typically, those that do only work through special finance dealers and finding them can be difficult.

That’s why at CarsDirect we work with an extensive network of these dealers, and can match you to one in your area. To get started, simply fill out our fast, secure online auto loan request form today.

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Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


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