How can I escape an upside-down car loan?

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Dear Driving for Dollars,
I bought a car about three years ago. I didn’t realize it at the time, but I was upside down on the car I traded in and the dealer rolled the remainder into the new car loan. My payments are really high and I can no longer afford them, but I am now majorly upside down in this loan. Is there any way I can get out of it?
— Scottie

Dear Scottie,
Although it’s getting easier to refinance a car loan and interest rates on refinancing are better than in the recent past, it’s unlikely a lender will take you on because you are upside down.

You might try refinancing the car loan by offering to pay the difference between what the car is worth and what you owe. It would be best to pay the difference out of savings. But even if you have to borrow it elsewhere, it still may be a better deal than your current one because the rates on bank loans are low.

Assess your options carefully and examine the terms of the new loan(s), the total cost and the monthly payment(s).

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If you have a car question, email it to us at Driving for Dollars. Read more Driving for Dollars columns and Bankrate auto stories. Follow her on Facebook here or on Twitter @SheDrives.

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