When you are “upside-down” on your auto loan, your loan amount is more than the value of the car.
If you are financing a new car purchase with an auto loan, standard depreciation means that you’ll likely be instantly upside-down on your loan. This is because new cars usually lose anywhere from $3,000 to 5,000 in value the second you drive them off the dealer’s lot.
If you are upside-down, you may want to refinance your car loan. In a refinance, you obtain a new loan at a lower rate to replace your first loan. Refinancing can save you a lot of money, but you’ll need to do your homework and factor in the fees associated with refinancing.
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