NEW YORK (CNN/Money) -
It's called being "upside-down" in your automobile, but it has nothing to do with scary car-crash scenarios. It's when you want to sell or trade in your car, even though you still owe more than the vehicle's current value.
Perhaps you simply made a bad choice and you just can't live with the ugly lemon any longer. Or a major life change may mean you need a different set of wheels. (Where are you going to put a baby seat in that Mazda Miata?)
If you're trying to buy a new car while you've paid off less than the value of your current car, you're going to lose money on the deal. Sorry, but it's unavoidable. There are steps you can take to minimize the damage, though.
|Minimize the damage:
|||Don't trade your car in. Sell it yourself.
|||Don't buy a brand new car. Look for one that's at least as old the one you have now.
|||Shop around for the best financing deal.
Unquestionably the best way out of this problem is simply to wait. If you don't absolutely need to change cars, stay in the one you have until you've paid off at least enough of the loan to get "right-side-up" again.
If you can't do that, don't just shrug your shoulders and trade the car in. First, call your lender find out the total amount outstanding on your car loan. Then check to see how much your current car is now worth. (Web sites like Kelley Blue Book and Nadaquides.com can help you there.)
Once you have that information in hand, here are some strategies to consider:
Sell the car yourself Yes, it's a hassle to sell a car. But doing so lets you maximize the value in the car.
"If a person sells their own used car they will put $2,000 to $3,000 more in their purse," said Linda Goldberg, CEO of CarQ.com and executive director of the National Association of Buyer's Agents. Especially in a situation like this, you'll need that extra money.
Basically, when you trade a car in, you're getting the wholesale price. When you sell it yourself, you're getting the higher retail price.
Think used instead of new When shopping for that new set of wheels, think used instead of new. Try to find something that's at least as old as the car you're leaving or even a little older. That way, the car you buy will have lost as much value as the car you just sold, making for an easier transition.
"You can get back on cycle later with a new car," said Mark McCready, director of pricing strategy for Carsdirect.com.
Don't trade a good loan for a bad one Of course, even after selling the car you'll still have payments to make. Before you can sell your car, you will have to pay off the outstanding balance on the loan in order to free up the car's title. Assuming you don't have enough cash on hand to do that, you'll have to take out some other sort of financing to cover that pay-off. McCready suggests considering a low-interest home equity loan as one way to refinance the remaining debt on your old car.
In general, you don't want to roll over your old loan into a new loan unless the new loan is at a much lower interest rate.
However you decide to finance the transaction -- whether you want to consolidate the old and new car loans or not -- just make sure to do the math to make sure it actually benefits you. Beware of low payments that come at the cost of an extended repayment period. By taking even longer to pay off the next car, you could be inviting another "upside-down" situation later on.
Before you decide to do any of this, think it through. Find out how much you can reasonably expect to get for the car you have and how little you can reasonably expect to pay for a car you want. Then shop around for financing.
Once all this is done, add up how much you're likely to lose by getting out of your car early. You might find that it's just not worth it. Or maybe it is, if you can find happiness by blowing a few thousand dollars.