It Can Be A Scary Place To Find Yourself After An Accident.
Most people recognize The Upside Down as the alternate Universe in Netflix’s hit series Stranger Things. However, in the world of car accidents it’s an actual place you can find yourself, and it’s equally as scary.
Upside down refers to financing associated with car loans. Generally speaking you are upside down on a car loan if you owe more money than the car is worth. After an accident, a person can find themselves upside down when they try to recover their property damage. In Kentucky, the compensation one receives for their property damage is the “fair market value.” Fair market value is the value that a willing buyer would pay to a willing seller to purchase the vehicle. This fair market value is often determined by manuals that assess the pros and cons of the overall vehicle value. NADA and Kelley Blue Book are two common assessors of fair market value.
Unfortunately, cars depreciate easily and the amount you owe on a loan can be significantly more than the car’s fair market value. When this occurs the money you would normally get to replace your car is paid to the financing company; however the money is not enough to pay off the loan, and you still owe. You are now in the Upside Down. You will still have to pay the financing company the amount due on the loan even though you no longer have the car.
This can place a double burden on the car accident victim. First, they no longer have their car for transportation. This can interfere with their ability to work and make money. Second, they do not have any money to replace the car but are still making a car payment. Such a result can easily escalate an already difficult financial situation for the victim, who is least able to afford it. Individuals who find themselves in the Upside Down often have poorer credit and a lower initial down payment. They are the persons least able to escape the Upside Down.
Fortunately, there are steps you can take to prevent ending up in the Upside Down. Perhaps one of the best and well known is Gap Insurance. This is an insurance payment, usually added to your monthly car payment, that will cover the gap between your car’s value and what you owe in the event of a car accident. This insurance protects you from ending up in the Upside Down.
Debt.org has a great article on upside down car loans and steps you can take to limit their long term financial impact, here. The last place you want to find yourself in is the Upside Down after a car accident that has left you injured and in a far worse situation then when you started. It’s a scary place.