So I bought a car last year for 37k total and put 12k down making my loan 25k, 6 years with a 3% APR. My cars current value is 30k. From what I’ve heard and have seemed to find online is that the bank still owns 25k on the car, the 5k I’ve paid so far on the loan is theirs and doesn’t go towards my ownership of the loan/car, and I only get 5k back. Is that correct? I don’t understand why but I’m also not the most financially versed
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You can think of the car loan and the car value as two separate things. The loan is just “secured” by ownership of the car, as if you default on the loan they have the legal right to recoup their cost by taking the car.
So if for example you bought a car for $30k and borrowed all of that money, no matter how much that car is worth you still owe the amount of the loan. If the car value goes to $0 then you still owe the amount of the loan, or if the car somehow increased in value to $100k you still only owe the loan amount of $30k.
Now because the car is used to “secure” the loan you can’t really do anything with it before you wrap up that loan. You can’t sell the car to your friend when you could stop making payments and the bank would take the car back, right? When you want to trade in your current car for another you need to first pay off the remaining loan before making your new deal for the new car. In your case you can sell the car for $30k but you still owe $25k so you are left with $5k after paying off the loan.
If over the course of the last year you had paid down some of your principle, that is the amount you borrowed, then that $25k you borrowed might be less now. Paying off the rest of the loan from the $30k of the car sale might leave more left over.
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