Upside Down Over New Car Prices?
When looking into new car prices, you need to keep in mind that new cars depreciate in value rapidly. This means if you are getting a loan, you need to be careful not to get upside down. Being upside down on a car loan means that you owe more than what the car is really worth. It is also referred to as negative equity. For example, if you owe $10,000 and your car is now only worth $8,000, you will be upside down by $2,000. It happens because of the fact that the car has depreciated faster then you could pay it off. This is more likely to happen if you have a long term loan, especially one with little or no down payment.
It happens to a lot of people, some statistics suggest that up to 40% of consumers are upside down.
If you wanted to trade in the old car for a new one, be careful, it will more than likely cost you more. It may seem like the easiest choice, but then you would have to pay off what you owe on the old car in addition to the price of the new car. Ultimately the car dealers make more money on the vehicles this way. It's better to forget about getting a new car and keep the old car until it's paid off. Try to pay it off as quickly as possible to avoid getting even more upside down.
One thing that you could look into is refinancing the loan to get a lower interest rate. Refinancing your car loan means paying off your current loan with a refinancing loan from a different lender that has a lower APR. This will save you money and make the monthly payments more affordable.
It may take some time to find a lender with a lower rate but it's worth the effort. Even a rate that is 1% lower can save a good amount of money if you have a lot of time left on your loan.
If you can't afford to finish the payments and you need to sell, it's better to sell it privately rather than through a dealership.
A dealership will usually pay less than a private buyer. The first thing you'll need to do is to get the lender to release the lien. You may need to pay off the loan in full to do this. Then you will need to get the paperwork in order for transferring the ownership and find a buyer. You can contact the DMV to get information on transferring the ownership. Also try to line up a buyer ahead of time.
How can you prevent becoming upside down when buying a new car? Put as much down as you can afford to, don't be tempted by a zero down offer. Try to put up to 20 percent down to offset depreciation. Choose the shortest financing term and highest monthly payments that you can afford. Going for the lowest possible payment will cost you more in the long run. Choose a vehicle that you will be happy with long term, changing to a new car every few years is the most expensive way to do things.
Another way to avoid becoming upside down is by buying a used car that is more than three years old. 30-40 percent of a vehicle's depreciation happens in the first three years. You are much less likely to get upside down on a used vehicle than a new vehicle.
Published on Wedsneday, October 8, 2008 - Email to a friend
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