You are upside-down, or underwater, on your car loan when you owe more than your vehicle is worth. This does not immediately spell difficulty, however it can lead to less flexibility that is financial safety.

You face two major dangers: you owe — and, if your situation changes and you need to sell your car, you’ll do so at a loss if you get into an accident, your insurance will generally cover the damage only up to the value of the car — not how much.