When we met Travis, he was in a tight spot. The car he had bought when his credit and income were good had recently become a burden. Before we met him, he had been unemployed for a short time and when he did find a new job, his income was nowhere near what he had been making previously. This meant that he was now saddled with a car payment he couldn't afford.
While this is not an uncommon circumstance, there still wasn't an easy solution to the problem since he didn't make any kind of down payment on the vehicle when he bought it. This left him in a position where he was upside down on his car loan.
Being upside down - or "underwater" - on a car loan is a situation in which you owe more money on a vehicle than what it is currently worth. This means that if you attempt to sell it, you still owe your lender money. In Travis' case, he had bought his car with no down payment, a payment plan of 60 months, and was about halfway through his loan. He owed thousands more than it was now worth.
Knowing that he couldn't continue to make the payments, his options were limited: He could either sell it himself and pay off the remainder to the lender, or trade in the car and have the negative equity rolled over into the new loan.
When he came to us, he had tried and failed at the first option and was having a hard time finding a dealer that would accept his trade in. Our team here at Auto Credit Express connected him with a dealer that helped him get into a vehicle at a more affordable price.
Ways to Avoid Getting Turned Upside Down
There are ways for borrowers to avoid being in situations such as Travis', and one of those is to have a decent down payment. If you are able to come up with 20% of the total vehicle value in cash, you'll greatly reduce the chances of having negative equity in the vehicle.
If possible, try not to go beyond a 48 month loan term. Longer payment terms can be tempting because of the lower monthly amounts, but always keep in mind that you'll pay more in interest charges over the term of the loan, and it will be much more difficult for you to break even should you decide to sell your car or trade it in before the loan is paid off.
If you're ready to make the purchase of a new or used vehicle, we can help you. All you need to do is fill out the easy online application, and we will do the rest.