When you owe more than your vehicle’s value but still want to trade your vehicle in the next purchase. If you acquire a car loan and owe more on your vehicle than what it’s the current value termed as negative equity. In this situation trading, your car becomes dicey which means considering the option to pay off the loan to attain positive equity in your car.
To get the most of it from the deal, you need to take and plan your steps accordingly.
Turning your negative equity
The negative equity can be turned into a loan for your new vehicle which means you’ll effectively paying off the previous car with the new ride in single time which means a larger loan on which you’ll pay interest. The loan can lead to an increase in financing costs which makes it hard to reach positive equity.
Approximate the financing
Look for the best loan for your situation which suits your situation and retain the most from the deal. Check the monthly payments by entering the loan which has negative equity, loan time period and APR to check the fluctuation in payment.
Look for low-priced car
To reduce the size and cost of your significant new loan in order to acquire a lesser expensive car. You can also acquire a used model instead of the new one to face the lesser effects of depreciation which can be termed as an upside problem you face previously. New vehicles face depreciation more in their first year and more in later years which shows buying a new car will help you reach more positive equity.
Look for pre-approved loans
Pre-approved loans save time as well as provide you the vehicle within the budget when purchasing a new vehicle. The approved loan helps in finding a suitable model to purchase and close the deal.
Set reliable loan terms
When equity increases your initial loan amount it is required to opt for a loan that is longer to keep and have lesser monthly down payments. This implies it requires longer to build the equity in the vehicle which entirely depends on the interest rate with the inclusion of finance charges leads to paying more for your car in the finance time period. The shorter loan with the same interest rate will have increased monthly payment in which you can retain equity and pay off the car completely.
Can I calculate negative equity?
If you’re facing upside down on the car loan and considering trading in your vehicle which means estimating the negative equity you possess. You should know about
- Car estimated value
- Owed amount on the auto loan
There are tools available that help in the estimation of the car’s trade-in value which requires filling out the details in terms of a year make, model and miles are driven on the odometer.
The lender will be a suitable person to provide you clear insight about the money you owe on the car loan. The current loan amount differs from loan pay off amount as it includes interest you owe through the day to pay off the loan with an association of unpaid fees.
What challenges you can face in an upside-down loan?
Nothing creates trouble if you can cope up with the payments and keep the car till the time loan is completely paid off.
There are situations where you’ll see the upside loan is creating more trouble for users:
Car is in total loss
After the accident, the insurer pays the current value of the car i.e. estimated value. If you possess an upside-down loan, you’ll owe the amount to the lender with addition to negative equity which means going hard on your pocket.
Fail to pay monthly payments
There are situations and circumstances where you face problems in meeting the ends and want to acquire a cheaper car in order to give up the current car and pay-off the negative equity.
The requirement of new vehicle
The change for vehicle arises with up gradation in things that means trading your vehicle for a new one which serves your purpose in the long run. You will pay the amount you owe more than the trade-in of another car.