BECOMING UPSIDE DOWN ON A CAR LOAN
Often, taking out a car loan will result in you being
upside-down on your car. Meaning, you owe more for your
auto loan than your car is worth. Therefore, selling your
car, and not losing money is a difficult thing to achieve
if you still owe money on your
auto loan.
What causes a car to become upside down?
--
New car
rebates and incentives cause cars to
depreciate much
faster. Therefore, the less expensive a
new car costs,
the less valuable an older is going to be.
-- Typically a minimum down payment of 20% is needed to avoid owing more
on your car than it is worth. It has become a common
trend for car buyers not to put down this minimum.
-- More than 75% of car buyers are choosing longer loan terms for their
financing. The longer the loan term, the more likely you
will become upside-down. A good idea would be to read
more about
choosing the right
auto loan term.
Negative consequences of being upside-down
Not only will you lose money if you sell your vehicle
when you are upside-down, you are vulnerable to losing
money if your car is stolen or is in an accident. How?
Because the total you would receive from any
auto insurance
company is going to be substantially less than what you
owe on your auto loan.
'GAP' insurance, otherwise known as guaranteed auto
protection, will help settle an upside-down new car loan if your
car is ever stolen or wrecked. However, most drivers do
not buy GAP insurance.
More Credit Advice:
There are many
factors that influence auto loan rates. Knowing what
these factors are will help you prepare for and ensure
your receive the best rates for your
auto financing.
