Refinancing is a great way to get better terms on an auto loan. But if you have negative equity, you can run into trouble getting approved for refinancing. Because a car is treated as collateral, most lenders won’t refinance a vehicle that’s upside down, as the risk of a loan default is much greater with negative equity.

How to Get Rid of Negative Equity

Can You Refinance a Car that's Upside Down?The first thing you need to do in order to determine where you stand is to find out how much you owe on the loan. Next, research how much your car is currently worth from sites such as NADA Guides or, for more accuracy, get it appraised by a dealership. Take that number and subtract it from your loan balance. The difference is how much equity, or negative equity, you have.

Once you know this, you can decide how you want to remove the negative equity in order to refinance. Two common options are:

  1. Pay in one lump sum – The best way to pay off negative equity is by paying the difference in one lump sum.
  2. Consider paying more each month – If you're able to, one of the best ways to get rid of negative equity more quickly is by paying more each month. You need to keep your car until you have equity, but you also need to financially handle the larger payments.

Another option is to sell your vehicle privately. Unlike trading in your car, you can typically get more money from a private sale. This only works, however, if you can clear enough from the sale to either pay off the loan, or can afford to pay any difference out of pocket.

The Bottom Line

Before you consider refinancing your car loan, make sure you aren’t upside down. Not only will it make it easier to get approved for refinancing, but you won’t have to pay any difference out of pocket. When you're ready, you can view and compare refinancing quotes by filling out the simple and free refinance request form on our website.

Auto Credit Express can also help connect you to a dealer who can assist you with a loan on a new vehicle. We work with a nationwide network of special finance dealerships that have the lenders available to help people who are struggling with credit. Our service is free of cost and obligation. Simply fill out our auto loan request form and we can get started finding you a local dealer that’s right for you.