How to Avoid Getting Crushed By an Upside-Down Auto Loan

Most modern consumers fall prey to increased consumerism and a compulsive need to keep on improving their lifestyle, even if they really cannot afford it. Nowhere is this behavior more evident than in the periodic purchase of new cars that are bigger and better. Unfortunately, because these cars are very expensive, they can very easily land up in a situation where they are “upside-down” on their loans, which means that the money they owe to the lender, is more than the worth of the car. This situation, also known as ‘negative equity’ or ‘underwater’, may cost the car owner a lot of money in case the car is totaled, stolen, or even traded in.

new-car

How Can You Get Upside-Down on Your Car Loan

It is proven that new cars undergo a very rapid erosion of value in the first couple of years. This means that if your car is wrecked or stolen or if you want to trade it in for a new model, you could find that the worth of the car to be far less than what the amount of the outstanding loan is. Whatever be the circumstances, the net result is that you end up owing a fair amount of money to the lender because of the difference of what the insurance company will pay you or what the trade-in value of the car is with the amount of loan remaining to be paid. If the difference is not too much then there is no problem if you add it to the loan that you take for a new car, however, when you rollover substantial amounts, your monthly payment could be quite high and the chances of you getting stuck in an upside-down situation become worse.  Read More