If you’re drowning in bad credit and stuck with a vehicle that’s underwater, beware! It can be hard to get out of those dark waters. Wake up from your negative equity nightmares and let us be your guide.

On a Dark and Stormy Night

beater carDriving down a narrow, wooded road, you happen upon an old cemetery. Howling winds and flashing lightning already have you scared when you see a figure up ahead. Could it be a zombie? Crash! Not a zombie just the guy who broke down earlier and you would’ve seen his car if your headlights had a better IIHS rating.

Banging up your car really puts a dent in its trade-in value. You need a new car, but now you owe more on your loan than the car is worth. It’s not uncommon for your dream car to turn into the stuff horror movies are made of. If your car is worth less than you owe, this is called negative equity and it can make it hard to trade in a vehicle.

Surviving the Horror

When you’re faced with the reality of being upside down in a vehicle, there are a few options to consider.

  • Cover the balance out of pocket. To find out roughly how much you will owe, research the value of your vehicle in its current condition and subtract that from the payoff value (which you can get from your lender). The remainder is the amount you'll owe the lender.
  • Roll over the balance. This is commonly done, but it may not be the best option for someone with bad credit. Adding what you owe to your new loan will increase the principal and leave you paying more in interest charges over the term of your loan.
  • Keep the car. This is sometimes the most practical option, with the goal being to keep your current car until you have equity in it or the loan is paid off.

Revisiting the Past

Maintaining the equity in your vehicle could help you from being “underwater” in the first place, or at least keep you there for a shorter time. Depreciation – the vehicle’s loss of value over time – is unavoidable and it’s one of the biggest causes of negative equity. There are a number ways to maintain vehicle equity. Simply remember to:

  • Keep it clean. The appearance of your vehicle can add to its value, so remember to keep it clean both inside and out.
  • Save your paperwork. Keeping receipts and records of service can help show prospective buyers that your car is well maintained.
  • Keep up with maintenance. Following the manufacturer's recommended service guidelines will help your vehicle hold its resale value.
  • Take the short way. Avoiding excess mileage will help maintain equity. The more wear and tear, the faster a vehicle depreciates.
  • Put cash down. A down payment is an excellent way to cut down on the time a vehicle has negative equity. Putting down 10 to 20 percent at the time of purchase will lower the principal, meaning you owe less on the loan from the get-go.

Fear Not

Being faced with negative equity and other issues that can arise with bad credit doesn’t have to be frightening when you have Drivers Lane on your side. We work with a nationwide network of special finance dealers who have the lenders that can come to the rescue if you have credit issues. No need to be afraid, start down the path toward a local dealer by filling out our online auto loan request form today!