Carmax And Upside-Down Loans: What You Need To Know

If you're wondering what to do about an upside-down car loan, you're not alone. Many people find themselves in this situation at some point, where the market value of their vehicle is less than the amount they owe, or they owe more on the loan than their car is currently worth. While it's not necessarily a bad thing if you're keeping up with your payments, it can be stressful and impact your future loan terms. One option to get out of this situation is to sell your car to Carmax, even if you're not buying a new one from them. This can be simpler than finding a private buyer, and Carmax can include the balance on your financing when you sell to them.

Carmax will buy your car without you buying from them

If you are an "upside-down car owner", you can sell your car to CarMax without buying another car from them. An upside-down car loan means the market value of your vehicle is less than the amount you owe, or when you owe more on the loan than your car is currently worth. This can happen due to high depreciation, which is highest immediately after you drive the car from the dealership.

Carmax will buy your car even if you don't intend to buy a new one from them. They will give you a no-hassle appraisal offer, and you can walk out with payment in hand. You will need to bring your paperwork, keys, IDs, and remote fobs to sell your car at CarMax. You should also bring your driver's license, the car's valid registration, and information about your car loan if you still owe money. If you own the car outright, you will need to bring the car's title, sometimes called the "pink slip". If you owe more than the car is worth, you will need to bring your checkbook, as CarMax requires cash or a cashier's check, certified check, or debit card for amounts greater than $250.

If you are selling an upside-down car to CarMax, they can include the balance on your financing when you buy from the dealer. If you are not interested in buying a new car, CarMax will calculate the difference between the loan balance and their offer and request that you pay them directly. CarMax will conduct an in-person verification of your vehicle and evaluate its history before finalizing the offer.

Selling an upside-down car to Carmax

If you're in a situation where you owe more on your car loan than the vehicle is worth, your loan is considered to be "upside down". This can be a stressful and challenging situation to be in, but there are options to help you get out of it. One popular option is to sell your car to Carmax.

Carmax gives sellers a no-hassle appraisal offer, and you are not required to buy a new car from them. When selling an upside-down car to Carmax, they can include the balance on your financing when you buy from the dealer. If you are not interested in buying a new car, Carmax will calculate the difference between the loan balance and their offer and request that you pay them directly. It is important to note that Carmax will verify your payoff, and you will need to pay the negative equity with cash, a debit card, or certified funds—credit cards are not accepted.

Before selling your car, it is recommended to review your auto loan balance and the resale value, as the state of your equity will affect how you can sell your car. Additionally, it is important to keep making timely payments on your loan to lower the balance, increase equity, and protect your credit score. If you can afford it, paying extra toward the principal each month can help you pay down the balance and increase equity faster.

While selling to Carmax is a convenient option, it may not be the most cost-effective option. Buying and selling cars privately can help you avoid negative equity. However, this may be a more time-consuming process as you will need to find a private purchaser who is willing to wait for the title to show up.

How to get out of an upside-down car loan

An upside-down car loan is when the market value of your vehicle is less than the amount you owe on the loan. This can happen due to high depreciation, which is highest immediately after you drive the car from the dealership.

Refinancing

If you have reasonably good credit, you could consider refinancing your loan at a lower interest rate. This will lower your monthly payments. You could also save up a down payment to refinance at a lower APR, which would allow you to pay down the principal faster.

Voluntary Surrender

If you can no longer afford the loan, you can call the bank that holds your auto loan and explain your situation. You can then voluntarily surrender the vehicle, which will have a negative impact on your credit score but is still a better option than a repossession by the lender, as you will avoid costly repossession fees.

Trade-In

If you need to replace the car, trading it in and then using other methods to pay off the negative equity or the entire car loan may be the best option. However, this is only advised if you find a car that is priced sufficiently below its value to make up for your negative equity.

Sell the Car

You could sell the car privately, rather than to a dealership, as you are more likely to get more money for it. If you can sell the car for enough to cover what you owe on it, this is ideal. If not, you can put the money from the sale toward the loan and then continue to make payments on what's left.

Make Extra Payments

If you can afford to, making extra payments toward the principal each month can help you get out of the loan faster and may allow you to bring down the balance at a rate that outpaces your car's devaluation.

Buy Gap Insurance

If you have a lot of negative equity, consider buying gap insurance to cover the difference between an insurance settlement and what you owe on the loan in case you get into an accident.

Sell to CarMax

Carmax will buy your car even if you don't buy a new car from them, and they give you a no-hassle appraisal offer. However, if you are selling an upside-down car to CarMax, you will need to pay them the difference between the loan balance and their offer.

Other Options

• Stretching out the terms of your loan can make a more expensive car more affordable in the short term, but it can expose you to long-term risk.
• If you have a local credit union or bank, you may be able to do the deal, collect the funds, pay off the lender, and transfer the title all in a short space of time.
• If you can't make car payments, it's vital to talk to your lender as soon as possible. If they don't have any solutions, consider talking to a nonprofit credit counsellor.

What is an upside-down car loan?

An upside-down car loan is a common occurrence in auto financing, where the borrower's loan balance exceeds the value of the car. This situation arises when a car owner owes more money on their car loan than the car is currently worth. It is also referred to as having "negative equity" on the car loan.

Upside-down car loans are often a result of the rapid depreciation of a car's value. New cars, in particular, experience significant depreciation as soon as they are driven off the dealership lot. Additionally, the interest accrued on the loan balance over time can contribute to the loan amount exceeding the car's value.

Being in an upside-down car loan situation is not necessarily a problem as long as the borrower continues to make regular payments as agreed upon. However, it can become challenging if the borrower wants to sell the car or needs to make an insurance claim. In the case of a sale, the borrower may have to pay the difference between the loan balance and the car's resale value. If the car is declared a total loss by insurance, the insurance payout may only cover the market value of the car, leaving the borrower responsible for the remaining negative equity.

To mitigate the risks associated with upside-down car loans, it is advisable to review the costs and fees associated with the loan before signing the contract. Making a down payment, keeping the loan term short, and avoiding unnecessary add-ons can also help reduce the likelihood of ending up in a negative equity situation.

If a borrower finds themselves in an upside-down car loan, there are options to rectify the situation. One option is to continue making timely payments to reduce the loan balance and increase equity. Another option is to sell the car to a company like CarMax, which specializes in buying cars with negative equity. CarMax offers a hassle-free appraisal and will buy the car even if the borrower does not purchase another vehicle from them.

What to bring when selling an upside-down car to Carmax

Selling a car with an upside-down loan to Carmax is a popular way to dispose of a car with negative equity. This is because Carmax will buy your car without requiring you to buy a new one from them.

If you are selling an upside-down car to Carmax, you should bring the following:

• Paperwork, IDs, keys, and remote fobs.
• Your car's valid registration.
• Your driver's license.
• Information about your car loan if you still owe money.
• Extra car keys.
• The car's title, sometimes called the "pink slip", if you own the car outright.
• Your checkbook in case you owe more than the car is worth. For amounts greater than $250, Carmax requires cash, a cashier's check, a certified check, or a debit card.

It is important to note that Carmax will provide a no-obligation offer, which is valid for seven days. This gives you time to get any necessary funds to settle the transaction.

Frequently asked questions