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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.



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