You might have heard the phrases “upside down” or “underwater” when it comes to real estate.

The same can apply to your vehicle.

The meaning of this phrase refers to owing more on the loan balance than what your home or car is worth.

For the purposes of the writing, we are discussing auto loans.

The very first thing you have to do is find out whether or not you are actually “underwater”. If you happen to be “underwater”, you need to know by how much. Finally, we will discuss how to remedy this situation.

Find out the balance of your auto loan. Review your most recent loan statement. If you don’t have one available, contact the financial institution that financed your vehicle and request the balance. Also, take note of your interest rate. (We will go into more detail about interest rates in another post.)

Find out the value of your vehicle. This can be easily found online with sites such as KellyBlueBook.com, Autotrader.com, Edmunds.com, and NADAguide.com

Compare the value vs. the balance. If your balance is lower than the value of your car or around the same amount, you are in good shape. If the balance is higher than the value, you are considered to be “upside down” or “underwater”. If you fall into this category, don’t fret. Here are a few ways to turn that upside down loan right side up:

Make principal payments: Any time you have extra funds, make a payment towards the principal of the loan. Ex. If your monthly payment is $400, try to pay $100-$150 extra towards the principal.

Whenever you receive bonuses, birthday money, income tax refunds, make an even larger principal payment.

*This will also assist you in paying the loan off faster.

Refinance your vehicle: Your credit may have improved since your loan was originated. Refinancing with different terms could bring the balance more in line with the value.

*Don’t stretch the term too far out, though. The longer the term, the chances of you going underwater again increases, as the value of the vehicle continues to decrease.

Sell your vehicle: If you have funds saved, you could sell the car and start fresh. Try to get the highest amount for it.  Keep in mind that you will have to cover the difference between the sale price and loan balance, hence the need for funds saved.

I hope this was helpful in assisting you with identifying whether or not you are upside down on your auto loan. If you happen to find yourself in that situation, I hope that one of the suggestions mentioned will be a good solution for you.