An auto loan becomes upside down the instant you drive a new car off of the lot. Some cars lose 20% of their value instantly. All cars depreciate for the first 25 years or so. If you take out a loan for an extended period of time, the payments may not catch up to the depreciated value, but you might benefit from refinancing the loan. Here are a few things to keep in mind before you refinance.
- Use an auto loan calculator to see if the refinance will help you. Run a few different interest rates to insure that your payment will go down or if you will be able to get the loan turned around.
- Check your FICO score and credit report. Higher FICO scores get lower interest rates and incorrect information on your credit report can lower your FICO.
- Shop around for the best rate and terms.
Once car loans for new vehicles go upside down, you may have to refinance to get them right. The same goes for used cars if you don’t offer a down payment. To prevent an upside down loan, settle for higher payments on a shorter loan. Either way you go, these tips will help you get the most favorable loan possible.