Reduced down payments, deferred monthly payments and longer loan terms may sound tempting at the start, but their prevalence has led to an increase in the numbers of people who are ‘upside down’ on their loans. The average new car can depreciate by up to 40% within a few years, and it can be easy to get behind. Below, you will find three things to know about Auto Financing Boise.
1. What exactly is it? In simplest terms, a person upside down on their loan owes more than the vehicle is worth. For example: A borrower owes $8000 on a loan for a vehicle that’s only worth $6000. If that borrower wanted to trade in the vehicle, they would be liable for that extra $2000, creating a negative equity situation.
2. How can I avoid going upside down? As we said, it’s quite easy to get behind on payments. You can avoid the hassle by making a larger down payment; each dollar you add reduces the overall interest you will pay. It’s also wise to select a loan with a shorter term; paying a bit more every month can keep you right side up. Lastly, you should buy a car with your long-term needs in mind. Most people end up ‘upside down’ when they try to buy another car before the loan term is up on their current vehicle. Build your loan according to the amount of time you’ll drive the vehicle; if you are only going to keep it for three years, a five-year loan isn’t a good choice.
3. How do I handle an upside down loan? Owing more than your car is worth is an uncomfortable situation, but you have choices. Be wary of getting another loan; rolling over can either lower your interest or leave you further in debt. If you’re in an upside down position, simply continue to make payments on time until the loan is paid off, and buy again when you have no negative equity.
Increases in the number of upside down loans have also led to greater prevalence of companies offering financial help. A conversation with a financial advisor or credit counselor is a good idea, but you should choose carefully. As with any financial transaction, your Auto Financing Boise should be based upon your loan type and your situation, and we recommend that you work with your lender as much as possible.
