Refinancing a Car with Negative Equity

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If you have negative equity on your current car loan, it means you owe more than the car is worth. You may be wondering what your options are when it comes time to get a new car, or just generally to get in a better financial standing.

While selling your car or using it as a trade in to rollover negative equity may be viable options, you should consider refinancing and keeping your current vehicle as a potential option as well.

Can You Refinance an Upside Down Car?

You may be wondering if you can even get approved to refinance an upside down car loan. The answer is yes, it is possible for some people, but it may not be easy depending on your credit and financial standing.

When you refinance a car loan, you’re essentially taking out a new loan to pay off the old one. You will need to qualify for your refi loan just as you did for the initial auto loan.

Refinancing can be very beneficial if circumstances allow for you to qualify for a better loan. This could take several forms depending on your goal of refinancing. These is commonly things like:

  • Lower interest rate
  • Shorter loan term
  • More affordable payments

Your financial standing and market conditions will help determine if a refinance approval is possible, and if so, if it is worth it.

If conditions are right, refinancing an upside down car loan can help you save money by getting a lower interest rate or modifying the term of the loan. It can also help improve your credit score over time by making your loan more manageable, resulting in more on time payments.

Refinance with Negative Equity: Benefits & Risks

It’s important to remember that refinancing comes with its own set of risks and costs. Be sure to do your research and discuss your options with the dealership or lender before making a decision.

These benefits and risks may not be applicable to all situations, as many depend on your credit and financial standing to determine approval and impact to your loan.


  • Lower interest rates, decreased total interest cost
  • More comfortable loan term
  • Potential to reduce negative equity through additional down payment or new terms


  • This will be a new hard inquiry on your credit
  • It may be difficult to get approved, especially with damaged credit
  • Refinancing may not entirely resolve negative equity on your loan
  • You may be subject to new fees during the refinancing process

Finding Banks that Will Refinance Underwater Car Loans

Most banks that will offer auto financing will provide refinancing for vehicle loans with negative equity, as will different types of dealerships.

The challenge for borrowers who are looking to refinance a negative equity car loan isn’t typically finding a lender who offers it, but rather it is getting approved through those lenders.

Since refinancing is a new loan, any bank or lender will require standard approval documentation including a credit check and proof of income. This is true regardless of if you’re a standard employee, self-employed, or on a fixed income.

If your credit has improved or your income has significantly increased, it may be worth discussing your refinancing options with a lender.