Overhaulin'

Is it illegal, in Texas, to get an upside down car loan?

I have a crappy little Celica GT, and I still owe $3500 on it. The engine is about to go out, and my brother in law works for Honda. He lowered the price of a Honda Civic, so the negative equity can be placed on top of the loan, but he could only lower it about $2000, so I will be put $1500 upside down. My parents claim that it is now illegal, in Texas, to be put upside down. However, my brother in law and others say this is not true. I can't find anything online about this litigation they are speaking of. Any answers?

Public Comments

1. It's not illegal to be upside down anywhere on on a car loan. The question is will the bank loan you the money a negative loan and even if they will do you want to dig yourself a hole that you won't be able to get out of for a long time?
2. Negative amortization and balloon loans are illegal in Texas and have been since the late 1980s or early 1990s. Merely being upside down is not illegal. If it were illegal to be upside down that would knock upwards of half of all car loans off the block and would cripple the auto industry.
3. Your parents are wrong. It may not be illegal but it's incredibly foolish. If you don't have the $1500 cash to get yourself out from under that loan you aren't going to be able to buy the Honda. Any way you look at it you have to pay that Celica off. If you still owe $3500 and the Honda dealer is willing to cover $2000 of that by discounting their car then it is up to you to cover the balance. That means you need $1500 cash on top to get rid of the Celica and buy a new Honda.
4. It is not illegal anywhere but do you really want to compound the problem? You will go from being $1500 upside down to $4000-$5000 or more. Give this serious thought before you take on more debt.
5. It is not illegal, but you will probably not find a lender that will give you a loan for $1500 more than their collateral is worth. You will probably need to come up with a down payment to offset the difference in order to qualify for a loan.
6. No, it's the buyers fault for accepting the terms and conditions of a transaction that would make them upside down.
7. Not illegal but incredibly foolish even if you COULD get approved. You are in a hole. The first step to getting out of the hole is to STOP DIGGING. Trading, even if you could, would be digging a much deeper hole. So, lets say you are $3500 upside down now, IF you could trade, you would immediately be $5500-6000 upside down then. Is that a good deal ?