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Don’t Go Upside-Down

Don’t Go Upside-Down

Today, thousands of people end up going upside-down in their vehicles, not physically, but financially. Unfortunately, many people don’t really even know what being upside-down means or how they can avoid it. Being upside-down typically means that you owe more money on your auto loan than what the car is actually worth. For instance, you might owe $15,000 on your vehicle, but its value has depreciated and it’s now only worth $10,000. That would mean you are $5,000 upside-down on your car. It’s a very common problem for consumers looking to trade in or sell their old vehicle for a new one. When they visit the dealer, they have to make up the amount they are upside-down on their auto loan, which could easily add thousands of dollars to the price of a new vehicle. For many consumers, that’s just the start to a vicious cycle that eventually leaves them deep in debt. Use these helpful tips to avoid going upside-down on your auto loan.

How to Avoid going Upside-Down on Your Auto Loan

  • One way to always stay ahead of the game and avoid going upside-down on your auto loan is to purchase it with a sizable down payment. Several years ago, you might have been able to purchase a vehicle with $0 down payment, but those days seem to be all but finished and that’s probably a good thing. While most people put about 10%-15% of their car’s value down, putting down 20%-25% leaves you in great shape.
  • Ask most people and they’ll tell you they want a new vehicle, fresh off of the assembly line with that new car smell. Buying a new car is definitely nice, but they also cost more money, depreciate at a greater rate, and are more likely to put your loan upside-down than a used car. If possible, go with a used car that’s 1-2 years old and holds its value well.
  • Are you the type of driver that is easily bored with cars and likes to have a new vehicle every couple years? Then purchasing vehicles might not be the best option for you and you could consider leasing instead. By leasing your car, you can have it for several years then get a brand new vehicle when the lease runs out. Of course, you should be aware of mileage limits, after-market limitations, or any other regulations in lease terms.
  • Finally, and perhaps most importantly, you should search for the best loan terms possible. You already know a high interest rate can hurt you, but the length of your auto loan is just as significant. If you can’t afford to make the monthly payments on a 60 month auto loan, then now may not be the best time for you to buy a vehicle. 72 and 84 month auto loans only mean more interest and a longer amount of time paying for the car, all of which are more likely to put you upside-down.

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