When Buying a Car, Avoid Creating Negative Equity

Negative Equity is when the loan balance is more than what something is worth.

Negative equity in a car happens when:

1.  A vehicle is financed with a high interest rate. The current auto loan rate for someone with excellent credit is anywhere from 0% to no higher than 4% with the average rate 2.78%.  

Anytime a car loan is upwards to 9%, 15%, and 25% is because of one or more of the following:

• the applicant was not  a “well-qualified” buyer
• the applicant didn’t read the paperwork before signing and just went with what the car salesperson and finance manager told them
• the applicant didn’t know the current auto loan rate
• the applicant was just glad that they were given the opportunity to buy a car and only paid attention to what the monthly payment would be and not the total cost when it’s all over including interest, taxes, and fees

2.  Trading in a car with a high balance to buy another car.  If a new car is desired every two or three years, it’s better to lease.  When a car with an auto loan is traded in, the balance owed on the old car goes on to the new car loan, which will make the car loan higher than what the new car is worth.

3.  The car was purchased for an amount higher than the value of the vehicle.  Know the value of a vehicle.  Purchase the vehicle at a price amount to compensate for depreciation.

Tips To Do Before Buying a Vehicle:

• Know the current auto loan rates on cars.
• Gather info about the value of a car from various sources especially if purchasing a used vehicle.
• Go to different dealerships to get quotes on the cars in which you are interested.
• Get the history on the vehicle BEFORE signing.

Additional info:

• Wanna Buy A Brand New Car?
• Bankrate.com – Negative Equity Auto Loan Payment Calculator
• Bankrate.com – Auto Rates
• Kelly Blue Book
• CarFax