How to sell a car that you are upside down in (where you owe more than the car is worth)

Many people buy a car on credit, only to find that cars drop in value like a rock, but the loan balance hardly budges. Many people find themselves way in over their heads and do not know how to get out. Here's how.

Get on a written monthly budget. If you don't have control over where your money is going, then the car isn't the main problem. (A shameless plug: I have written a couple of article on eHow about how to write a personal budget.)
Look on or to find out what the car is worth in a private party sale. You should not be interested in selling the car to a dealership, because they will not pay the same that a private buyer would since they have to make a profit. Let's assume for the sake of simplicity that your car is worth $15,000 in a private sale.
Call the company that holds or services the loan to determine the amount needed to pay off the loan in full. We'll assume the amount is $20,000. This means, for this example, that you owe $5000 more than what the car will bring in a sale.
Go to a local bank or credit union in person. Ask for a personal loan (also sometimes called signature loan or an unsecured loan) for the amount of the difference ($5000 in our example) and perhaps an additional small amount, say $2000, to buy an inexpensive car to drive around in until you save up enough cash to be a more reasonable car.
If you are unable get a loan at a local bank or credit union, then start saving as much cash as you can each month until you have the difference between the amount you owe and the amount the car is worth ($5000 in this example). Then you can sell the car and write a check to pay off the difference. If terms of the financing easily allow for it, instead of saving the cash, simply pay down the balance of the balance of the loan until the loan is for less than the amount owed. Make sure the company that does the financing applies the extra amounts to principal only, and that they do not take it to be a prepayment of future months' payments.

  • Consider selling stuff on eBay or having a yard sale to scrap some cash together to be able to pay off the difference.
  • Consider getting a side job to help make money to get rid of the car.
  • Do not let the car be repossessed. If they repo the car, it does NOT mean you do not owe the money. Quite the opposite is true. If the car is repossessed, they will then sell the car at auction for far less than what it's worth. For example, your car that's worth $15,000 might sell for only $8000 at auction. You will then owe the balance of the loan, minus the amount the car brought at auction ($20,000-$8000=$12,000 in this example.) They will then eventually sue you for this difference and win the lawsuit and if you do not pay, then they can garnish wages.

Copyright 2009 by Michael Nehring