Today we’re talking all about negative equity and how to sell an upside down car. You probably found this post by searching for ways to cover the negative equity in your car. As a self-diagnosed free-spirited nerd, I learned a few times in my life what it means to be upside down, and I can tell you I’ll never go back to that place.
It’s underwater. It’s Broke. It’s not fun.
My husband and I purchased a brand new vehicle (stupidly) years ago and decided awhile later, that, after financing $48,000 and $733 minimum monthly payment, we were done. We were done basically paying a house payment for a car. So we walked into our credit union. We sat down with our banker, and we explained our situation. I asked them, “Will you please pull the NADA value of my vehicle?” Being a former banker, I know that NADA is how the banks and credit unions determine how much money to loan on vehicles. They actually don’t even use Kelley Blue Book. KBB is garbage, in my opinion. It’s not an accurate valuation of a vehicle. If banks and credit unions are using KBB, then…I’ve worked at a few different banks, and none of them use KBB. So if they used it, I might feel differently about it. Car dealers tend to use KBB to their advantage when they’re offering trade values for your vehicle. So let’s say you walk into your bank. You talk to your banker. You say, “Ok…I’m upside down $5000.” They told you the value of your vehicle, and you’re upside down $5000. If you’ve been looking at vehicles, and you have an idea of what you’re looking for, talk to them about it at that time. Say you found a 2009 Buick Enclave, and it’s $12,000, and it has 90,000 miles. They can plug that into NADA Retail or NADAguides.com and give you a retail value on that as well. And sometimes the bank or credit union will loan 125% of the retail value. So that’s good to know going forward because if you are upside down, sometimes you can get a little bit of that negative equity squeezed in there. But I would always recommend gap insurance in that instance…always.
Your insurance company likely offers gap insurance for significantly cheaper than the car dealer. Do not purchase gap insurance from the car dealership. Purchase gap insurance through your insurance company. And you will save hundreds of dollars.
Side note: I’ve created a SMART goals worksheet (free printable) for you to write out all of your financial goals so you can get REALLY specific and start getting ahead! Just fill out the form and I’ll send you the password to my free resource library.
Back to the Plan: How to Sell an Upside Down Car
So you’re gonna talk to your bank. You’re gonna get some options. The next place that I would go after having talked to your bank, and you kind of have an idea of how much money you’re gonna have to come out of pocket, I would take my vehicle to Carmax and have them give me a valuation offer for it. So Carmax will offer to purchase your vehicle at a set amount. It’s no b.s. It’s no-haggle. You go in. It takes about 45 minutes for them to value your car, and you can leave there with a sheet of paper that says they will buy your car for X amount of dollars within 7 days. So you wanna make sure you’re at the end of your decision-making process before you do that. But take that piece of paper…fold it up, put it in your purse, and now you’re gonna drive to the car dealership where you were looking at a vehicle. And you want to not give away too much information about what you are looking to do.
Walk in there and just say, “I want to test drive this vehicle.” And they will ask you, “Oh do you have a trade?” Don’t tell them that you have a trade yet. Don’t lie to them, but say, “You know? I’m not sure what we’re going to do yet.” So go in, test drive the vehicle.See how you like it. And make sure you’ve got your pre-approval from your bank as well. Then you can sit down with them and explain to them that you want to negotiate a price for that vehicle. Try to negotiate a price for the purchase of the vehicle without your trade included at first. Car dealers are gonna hate on me for this, but that’s what we have to do. We have to protect ourselves as consumers. So see if they’ll negotiate a price for you and then if they are really persistent about if you are going to be trading your vehicle or if you feel weird about not telling them then just let them know. Also, let them know that you did get a valuation at CarMax, but you’re waiting to see what their offer is going to be. Don’t share the offer from Carmax just yet. So do that. You’re going to get an offer. They’re gonna write down some numbers, and they’re gonna want you to sign something committing to purchasing.
Don’t do that. Ask if you can test drive the vehicle overnight. Take the car. Go to a competing dealership with the car and…with the other dealership’s vehicle, and tell them that you’re looking at this car, but do they have anything similar? And sit down and do the exact same process with that other dealer. If you have to do this at several different dealers that day, do it and then take the car back and go back and forth between the dealers. I know it sounds like a lot of work, but I can promise you that you will get a better deal.
And you will get more money for your trade-in. I actually was able to get $500 more than what Carmax had offered me, but, strangely enough, the Honda dealership that I purchased my vehicle from (brand new) was offering me $2000 less than Carmax, and they said, “Oh! We want your vehicle!” Because we bought it brand new at that dealership. It was 2 years old. And it had been serviced faithfully, so they could put it as a certified pre-owned vehicle on their lot for about $4000 or $5000 more than what they were offering me. So I walked away from that dealership. We’ll never do business with them again.
I hope that these tips have helped you a little bit to understand how to sell an upside down car. Obviously, you’ll need some cash. I would never recommend using credit cards to offset negative equity…not even the 0% credit cards because …it’s just not a good idea. You can tell yourself that you’ll pay off the balance within the promotional period, but it’s just too risky. Unsecured loans are really hard to get unless you have A+ credit, and the interest rate is usually very high on unsecured loans.
So to recap: talk to your bank about your options. Go to a Carmax. Get your valuation. Use your valuation as leverage, and just keep that nugget of knowledge for you as fuel with the other dealers so that you can get the best deal when you’re trading out of a more expensive vehicle. Please take a moment to subscribe to my YouTube channel. Let me know if you have questions or comments! I hope this helps you understand a bit more about how to sell an upside down car!