Sometimes referred to as being "upside-down" in a loan, the accumulation of negative equity is an all too common problem among car buyers. Negative equity is easy to acquire because vehicles (especially new ones) depreciate in value rapidly. So, unless your down payment is substantial enough and/or your finance contract is short enough, if you finance a car, you may find that it doesn't take long to owe more on the car than the vehicle is actually worth.
Selling a Car When You're Upside-Down in the Loan
If you don't realize that negative equity has accrued on your auto loan until you want to get a different car, you may find yourself in a dilemma. Even if you recoup the vehicle's current value in the sale, it won't be enough to cover what you owe on the loan. What can you do?
- Pay the difference out of pocket. If the monetary gap between what you have left to pay on the loan and what the car is actually worth is within your means to pay, this may be the easiest way to solve your problem.
- Increase your monthly payments. Paying more than than the minimum amount will reduce the time in which you are upside-down on the loan. Once you catch up, you will be free to sell the car without having to worry about a lingering financial burden.
- Roll the negative equity into a new loan. Many dealers will allow you to do this if you're trading in a car that you're upside-down on. The only problem with this solution is that, with that additional amount added in, it will be even easier to build up negative equity in the new loan, and you may find yourself in a worse predicament down the road.
Preventing Negative Equity Right from the Start
If you're on the verge of buying a vehicle, you should remember that the best way to prevent the accumulation of negative equity is to prepare a good down payment. 10% of the total price of the vehicle is typically regarded as an acceptable amount (20% or more would be even better), and the value of your trade-in can be added to the cash that you have on hand.
Getting an Affordable Auto Loan
When you are ready to make that car purchase, you will want to make sure that you get the best deal possible on your financing, regardless of what kind of credit you have. Auto Credit Express can help you make this happen. Every day, we successfully work with all credit types, and we can find a loan solution for you, no matter what your situation looks like.
Just fill out our fast and secure application to get started today.