32 percent of car loans were upside down in 2016


It’s financially frustrating to owe more on your car loan than the car is worth—what’s sometimes referred to as being upside-down in your loan. Being in this precarious financial position can get you into real trouble if you total your car in an accident, if your car is stolen, or if you need to sell your car due to financial hardship.

Being upside-down also means that you lose your opportunity to refinance your used car. As much as we like to help our members by offering used car refinancing to lower your rates, there’s often very little we can do if they’re significantly upside-down since we can’t finance a used car loan for more than the used car is worth.

Unfortunately, it’s fairly common to end up being upside-down in your car loan, at least for a little while—especially if you finance a new car since new cars start losing value the moment they’re driven. However, many missteps that cause car buyers to wind up owing more than the car is worth happen well before you step onto the lot to hear the sales pitch.

7 Tips To Avoid Getting Upside-Down In Your Car Loan


Here are a few things to think about before you go car shopping that will keep you in a solid financial position for the life of your loan:
  • When possible, buy used

    Customers who buy a new car will usually be upside-down in the loan, at least for a couple of years, unless they shell out a significant down payment. Buying a quality, well-maintained used car, on the other hand, can help you avoid getting upside-down in your loan.

    At SC Telco, we offer used car loans at new car rates if the used car is less than three years old and has less than 30,000 miles.

  • Shop around for the lowest rates

    Of course, if you’re paying high interest rates every month, you aren’t paying as much toward principal reduction, and it will end up taking you longer to get right-side up in your loan. That’s why we recommend “shopping for your money” before you go shopping for your next new or used car. Getting new or used car financing at the dealership will rarely get you the best interest rate, and is a particularly unwise choice for buyers who are rebuilding poor credit. Instead, choose one of our competitive bad credit car loans to save money and stay ahead of your car loan.

  • Choose the shortest loan term possible

    Other than buying used, this may be the best advice for staying right-side up in your car loan, particularly if you are buying a new car. Too many dealerships these days offer long-term car loans of 60 months or more. While the lower monthly payment can be tempting, extending the length of your loan causes you to pay more in interest and makes it take even longer until you are right-side up in your new car loan. In addition, if you decide to trade-in your car while you still owe more than it’s worth, you will either have to pay cash to get out of the loan or roll the payoff amount into your financing, putting you even further behind on your next car. Ideally, you should choose a loan term that matches, or is less than, the number of years you plan to keep the car. Make the choice now to stay on top of your car loan, and use our convenient online auto loan calculator to see how much you can really afford.

  • Make a down payment

    Whether you are buying a new car or a used car, it makes financial sense to put as much money into a down payment as you can. When buying new, a down payment can reduce the amount of time that you are upside-down in your loan and, when buying used, it will reduce the overall cost of financing. Financial experts recommend putting down at least 20-percent of the price of the car—but don’t think you have to bring that much in cash. Manufacturer cash back rebates and any value you have in your trade-in will count toward your down payment. Even if you can’t scrape together 20-percent, putting even $500 down may help you avoid getting upside-down in your loan.

  • Know what your trade-in is worth

    When shopping for your next car, you have to be your own financial advocate. Never walk into the dealership blind. Before you go, make sure that you know the NADA value for your used car so that you know what your trade-in is actually worth. Include any factory extras and be fair about the condition your car is in. Having well-documented maintenance records can help you establish the condition of your car as well. Remember, the trade-in value counts toward your down payment, so you want to get every dollar that you’re entitled to.

  • Choose a car that retains its value

    Some cars hold their value better than others. While most of our tips focus on lowering the cost of your car financing, you can also avoid getting upside-down in your car loan by raising the value of the car that you purchase. Purchasing a car that depreciates more slowly will shorten the length of time you are upside-down in your loan. Consult an independent car fact website such as NADA for average depreciation rates and make sure to add depreciation to your list of considerations when shopping for your next car.

  • Watch out for “free” extras

    Buy a new car and get a free flat panel television! Buy a new car and get a trip for two thrown into the bargain! If promotions like these sound too good to be true, they probably are. While some promotions are legitimate, many of these freebies are actually rolled into the overall financing, putting you further behind in your loan from day one. Be sure to read the fine print carefully and say no to free offers that could end up costing you a lot down the road.

By following these tips, and shopping for a great car loan rate at SC Telco before you shop for your next car, you should be able to avoid getting upside-down in your car loan. Customers who buy new may still end up owing more than their car is worth for a little while. If this is the case for you, consider purchasing our low-cost gap insurance to protect yourself while you’re upside-down in your car loan#

#Loan to value no more than 130% to qualify for GAP Insurance. Member must not have more than two (2) skip-a-pays for the life of the loan.