Negative Equity
Auto Loans

10 Car Buying Tips to Avoid Being
Upside Down in Your Loan


Negative equity auto loans have become commonplace in today's economic environment. Customers want low payments, while at the same time keeping up with the Jones'.

If you are not careful, negative equity in your car can essentially "marry" you to it for the next 6, 7 or even 8 years.

Not cool if your car doesn't fit your lifestyle anymore, i.e. kids, payments too high, lost your job, etc.

Avoid these common mistakes follow these car buying tips and your vehicle ownership experience will be much more flexible and pleasant...


10. Fix any credit problems you may have to get a lower finance rate
The dealership that I work for handles a lot of sub prime auto loans and it is not uncommon for us to write contracts with APR's as high as 24.99%.

What this means to the you is a finance charge that is upwards of 80% of their total amount financed.

So if the amount financed were $10,000, then finance charge you would pay to the bank is $8,000.

That's a lot of wasted money and it's preventing you from paying down the principle as quickly as possible. This will quickly lead to a negative equity auto loan.


9. Maintain your vehicle
Take care of your vehicle both under the hood and cosmetically. The better it runs and the better it looks means better money when you trade it in.


8. Be sure to get top dollar for your trade in
Check the Internet and local publications to see what vehicles like yours are selling for. You won't get this money when you trade it in, but it will give you a general idea of what vehicles like yours retail for.

If you can sell it on your own, you will always get more money this way vs. trading.

See the blue book guide to learn how to interpret trade values and private party values.


7. Buy a vehicle that is easy to resell
Don't buy a vehicle there will be little demand for when you trade in or try to sell on your own.

For instance, the purple VW Beetle with orange polka dots. You may love it, but most car buyers will be looking for something a little more conservative and it's trade value won't be as high.

If you buy a one of a kind vehicle and you are the only "one" that likes it you will find yourself in a negative equity auto loan.


6. Don't buy a brand new vehicle
If you do definitely negotiate a great deal and seriously consider leasing.

In our current economy some vehicles are losing massive amounts of money as soon as they are driven off the lot.

For instance, some trucks and SUV's are losing 40-50% of their value in the first few months on the road. OUCH!!!

New vehicles in a good economy will still lose 20-30% in the first year. If you absolutely have to buy new, then leasing is a much better option.


5. Do your homework to find the best possible deal
The Internet is a wonderful invention and affords consumers the luxury of searching hundreds of car dealerships and their vehicles in a very short period of time.

The great thing is you get to compare vehicles in the comfort of your home with no pushy sales people bothering you.

You can also have dealerships compete for your financing, which will help to avoid the dreaded negative equity auto loan.


4. Finance for 48 months or less
This of course, is not always possible, but some customers are financing vehicles for as long as 96 months. That's 8 years! Don't do it.

A 72 month loan is the absolute max I'd ever suggest, but 60 months or less is a much better option.


3. Put 30% or more down
Again this is not possible for most customers, but if you are able to save before buying it can help immensely in the amount you'll pay in finance charges.

Do you really want to pay interest on your tax, title and license?


2. Pay more than your monthly minimum
If you can tack on an extra $50 a month, or better yet double your car payments, you'll find yourself in a more equitable position much faster and pay a whole lot less in finance charges. Your best bet is to make Bi Weekly payments.

Your final way to avoid having a
negative equity auto loan is, drum roll please......

1. Do not buy more vehicle than you can comfortably afford
I know that here in America it's hard to drive an EX when your neighbors, Mr. and Mrs. Jones are driving the super deluxe LX model, but is it really worth strapping yourself for cash month in an month out for the next 5, 6, or 7 years?

Humble yourself and you'll find life is better when you have more cash and you're not trapped in a negative equity auto loan.


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