Upside Down Car Loan
Do you have a car that you want to trade in? You might be in for a shock. It’s likely that the dealer will make a trade-in offer that’s anything but high-ball and not even ultra-low discount financing or a huge cash rebate on a new car can make up for it.
The blame is on used car prices going down.
Tom Kontos, a vice president at ADESA Corp., an auto auction and remarketing services company says, “The high new-car incentives have caused used car prices to go down.” Thus, when used car owners decide to sell, “they’re going to get an unexpectedly low price on the trade-in.”
The low prices on trade-ins won’t be welcomed, especially by the 40 per cent of new car shoppers whose old auto loans are upside-down car loans.
What are Upside-down Car Loans?
An upside-down car loan is a loan that exceeds the current value or resale price of the car. Simply stated, upside-down car loans happen when you owe more money on a new car than it’s really worth. Say, for example, you still owe $5,000 on a car loan and you decide to resell. You find out that the trade-in value is only around $3,000. Your car loan is therefore what is termed as an upside-down car loan.
Upside-down car loans have become quite common and many people find themselves in the same situation as you are now. About 38 per cent of those who are trading in their old cars owe more money on their trade-ins than the resale price. This is according to the Power Information Network, an affiliate of market researcher J.D. Power and Associates.
What causes to Loans to become Upside-down Car Loans?
Car value depreciation is one of the main culprits of upside-down car loans. When the car is depreciating faster than the purchaser is building equity, new car loans quickly become upside-down car loans.
What should you do when you have an Upside-down Car Loan?
When you in a situation where your new car loan becomes an upside-down car loan, the best thing you can do is hang on to your car and pay it off as quickly as possible. At this point, refinancing your upside-down car loan might be a good idea.
Refinancing is one of the best kept secrets in the auto financing industry. By refinancing your upside-down car loan, you can reverse the cost of your loan and save yourself from spending more than you’re willing to. With a low interest rate loan, you can refinance your upside-down car loan and lower down your monthly payments.
Recommended Reading
- Refinancing Car Loan
- Car Loan Financing
- Refinance Car Loans
- Car Loan Refinancing
- Atlanta Car Loan
