 | Nate Evans is a 4th generation owner and operator of Evans Motors located in Pittsburg and Girard. Evans Motors has been in business and serving the area since 1935. For more information call 1-888-414-3890 or visit www.evansmotors.net. |
Cars, Trucks, Vans & Automotive
2012-04-20 11:31:55
Upside down car loan
A: Unfortunately, you are not alone. There have always been cases of upside down car loans, but the numbers have increased significantly over the last five years. In fact, some estimates put the number at around 40% of newer car owners.
Know that it happens frequently because it happens easily. Just combine a low down payment or no down payment with an auto loan with a longer term of five, six, even seven years. Then factor in the rapid depreciation that hits every new car in the first couple of years and presto, you’re upside down on your auto loan.
Trading in your car is not a good idea as you’ll find yourself drowning in negative equity. What would happen is that the old car’s remaining debt would roll over into the new loan for the new car and you end up paying interest and payments on a car you no longer own. The added debt would also put you upside down on the next vehicle, putting you in a vicious cycle of debt.
One option is to sell the van yourself if you can get the amount you owe. If not, my suggestion is that you hold on to the van until the van is paid off or the amount owed is roughly equal tot he current market value of the vehicle.
If you need a different vehicle, I would consider buying a used car, where the initial rapid depreciation has already occurred and the starting amount owed is close to the car’s actual worth. Pay as much as possible upfront and opt for a shorter-term loan. This will prevent a debt cycle.
