How to Refinance a Car if I Owe More on It Than It Is Valued

An upside down car loan can put you in a financial pinch.

An upside down car loan can put you in a financial pinch.

Depending on the length of your financing agreement and the amount of money you paid for a down payment, you might have a negative-equity loan. According to Edmunds.com, negative equity -- also referred to as being upside down on your loan -- occurs when you owe more on your vehicle that it is worth. Negative equity typically happens during a trade in when the value given for your old car is less than you owe, your down payment is less than 20 percent or you finance the vehicle for longer than 60 months. You might be able to refinance an upside down loan if you have a high credit score.

Read your loan contract to ensure that the lender will not charge a prepayment penalty if you pay it off early.

Visit AnnualCreditReport.com to view your credit reports from the three main credit-reporting bureaus, Equifax, Experian and TransUnion. You can order free reports from this website once per year. Look for any discrepancies -- such as erroneously reported late payments -- that might be lowering your score. Dispute any errors with the credit bureau and ask it to remove them from your report.

Talk with your lender about refinancing your car. Because you have existing credit with your lender, it can be more likely to work with you on your loan if you have a history of making your payments on time. Ask what the loan payoff amount is.

Visit Kelley Blue Book to determine your car's present value. Enter your vehicle's make, model, options and condition to receive the most accurate estimate.

Compare lenders to determine where you can get the best loan. Look at interest rates, length of loans and ask lenders what their criteria is for refinancing an upside-down loan.

Complete an application and provide the lender with any requested documents. The lender will ask you to verify your income by showing at least three check stubs from your paycheck or, if you are self employed, your tax returns for the past two years. It will also ask for information about your vehicle, how much you want to borrow and proof of registration and insurance.

Pay a down payment to lessen the negative equity in the car. Your lender may require that you pay money down on the refinance agreement to lessen its liability if you do not pay your loan as agreed.

Pay any closing costs for the loan and contact your insurance company to change the vehicle's lien holder. Ask your agent to send you new proof of coverage for the car. Contact your county tax assessor's office to request new registration showing the new lien holder.


  • Refinancing a used car can leave you paying more interest. However, your payment might be less because the loan might extend the time that you have to repay.


  • Depending on the length of the refinancing agreement, you could be left with larger negative equity than you have now.

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About the Author

Specializing in business and finance, Lee Nichols began writing in 2002. Nichols holds a Bachelor of Arts in Web and Graphic Design and a Bachelor of Science in Business Administration from the University of Mississippi.

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