Why It's Bad to Owe More on Your Car Than It's Worth

First of all, being “upside down” puts you at serious financial risk. If your car is stolen or totaled, you could find yourself without wheels and still owing thousands to your lender. (The amount you'll get from your insurer reflects the car's current, depreciated value—not what you paid for it.)

If you lose your job, you'll face a similar crunch. You might not be able to make your payments, but you won't be able to sell your car for enough to pay off the loan.

There is a type of specialized insurance, called guaranteed auto protection, that can cover the gap if your car is stolen or totaled, and you can buy credit unemployment insurance to make your payments if you lose your job. If you're ...

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