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How to Sell an Upside-down Car

One of the most common pieces of advice you’ll hear on The Dave Ramsey Show is pretty simple: Sell the car!

Dave will generally say that after a caller reveals they have a bunch of their debt tied up in a car loan. Getting rid of the car is the easiest way to dump a bunch of dead-weight debt.

But sometimes, selling the car isn’t so easy. What if you’re “upside-down”—you owe more on the loan than the car is worth? What does Dave suggest doing in that situation?

His advice might surprise you. When Tonya, a recent caller to The Dave Ramsey Show, asked Dave how to sell an upside-down car, here’s what he said:

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You have to borrow the difference. I'm assuming you don't have the cash. Let's say you owe $17,000 on the car, and it's worth $13,000. That would leave you $4,000 in the hole, and so you'd have to borrow $4,000.

How do you do that? Your best source is to borrow it from the company that has the car loan now. If you have it at a local credit union or a bank, you could go and sit down with someone and say, “I'd rather owe you $4,000 than $17,000 because I'm what's known as broke. Let me sign a note for whatever the car doesn't bring. Whatever the car does bring will be applied to the loan, and you’ll release the title.”

You can usually negotiate that if you have a small, local community bank or a credit union, because they actually have a brain. If the car loan is with a major national car company, you won’t get this to happen. You will simply have to go borrow the money—the $4,000—from your credit union. Hopefully your credit is good enough to do that. But in order to get the title release, you have to pay the loan off or have permission from the lender that has the lien on the title. That's the big problem. But it's very, very doable. It happens all the time.

Listen to Dave answering this question.

Wait a minute; Dave said to borrow money?

In this very specific situation, yes he did. Like he said, you would rather owe $4,000 to a credit union than $17,000 to a big car company. It’s a matter of the lesser of two evils.

So if you’re one of the many people stuck in an upside-down car—not literally, of course—then give this approach a try. And remember, if you do sell the car and take on a smaller loan, the idea is to pay it off as quickly as possible. Work it into your debt snowball and get gazelle intense!

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