There is one thing you don’t want to be if you can help it. And that’s “upside down” in your vehicle. It’s a term that means you owe more on the car than it’s worth. Dealerships also use the phrase “negative equity”.
Negative equity can be an issue if you decide to sell or trade-in your car, or worse have it totaled in an accident, and discover you owe more on it than its true value. You can read more about true value in our previous post here.
If you find yourself in this position, you don’t have many options. Since you owe more on the car than it’s worth, you either have to pay cash to make up the difference, or you roll over what you owe into the new loan. Good credit can help that situation but proceed with caution. The last thing you want to do is get stuck in another upside down loan down the road.
So here’s how to avoid this scenario in the first place.
- Get a good deal on what you are buying up front.
- Also put at least 10 percent down in cash or trade equity.
- You also want to get the shortest loan period you can get and still be comfortable with your payments.
- Choose a car that holds its value well. You want one that depreciates slowly.
With these tips, you can avoid an unpleasant surprise of discovering you’re upside down in your vehicle.
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