Credit Advice

Have a question? Have advice to share? The combined knowledge and experience of everyone in the Credit Karma community can help you. Enter your question or help others below to get started!

Question

Posted in Auto Loans
Profile Image

Question By
CarGuy2015

0 Contributions
0 People Helped
Upside Down Loan Advice
I am currently in a vehicle loan and upside down by a couple thousand dollars. I am paying 3% interest. I am looking at a current offer of 0% over 72 months on the vehicle I would like to be driving. I am wondering if the 0% offer would make it favorable even though I am upside down by a couple thousand?

Your Credit Scores Should Be Free. And Now They Are.

View your scores and reports anytime.

SIGN UP NOW
All Responses

Results 1-2 of 2Results per page: 5 | 10 | 25Page 1 of 1   Previous | Next
Top Contributor
179 Contributions
332 People Helped
Most Helpful Response

Dont get into a cycle of paying more....

Helpful to 1 out of 1 people

Banks NEVER give perfect rates to borrowers because there is ALWAYS risk involved in the lending of money.  However most people also tend to forget that the loan process is a two way street and end up forgetting their own risk involved.  What if you find the car is a lemon 3 years into your loan?  In an upside loan, you are then stuck paying into a loan of two cars with neither of them being the value you are actually putting into them.

IMO, there’s never benefit from being in an upside down loan other than getting a newer car, sooner.  As I’m sure you already know, loan rates are typically structured with loans at lowest risk levels to lenders generating the lowest interest rates, and the loans at higher risk levels receiving extra compensation to cover the additional risk structured in the loan terms.  Upside down loans certainly accomplish gaining additional risk with the second car being rolled in the loan terms, typically forcing extra compensation over the life of the loan as a result. 

Even when the interest rates are in your favor initially, you are usually forced to take a longer term loans, forcing more interest on you overall.  With some loans reaching into 70+ months; just a 1% increase to the rate could force thousands onto your loan over time.  And if the situation above occurs with your car being a lemon, you are then forced to continue the same cycle again with even MORE risk on your next loan.

1 Contribution
0 People Helped

Hard to say long term, without knowing any of the numbers.  Personally, I think you'd be more upside down in the new car, and there is no benefit to paying off early with 0%, because there is no interest to chase. 

Results 1-2 of 2Results per page: 5 | 10 | 25Page 1 of 1   Previous | Next

Your Credit Scores Should Be Free. And Now They Are.

View your scores and reports anytime.

SIGN UP NOW

Reply to this Question

Write your response:
Enter Your Comments

The Credit Advice pages of the Site may contain messages submitted by users over whom Credit Karma has no control. Credit Karma cannot guarantee the accuracy, integrity or quality of any such messages. Some users may post messages that are misleading, untrue or offensive. You must bear all risk associated with your use of the Credit Advice pages and should not rely on messages in making (or refraining from making) any specific financial or other decisions.