15 Facts About Being ‘Upside Down’ On Your Car Note
One of the biggest barriers to a satisfactory vehicle refinance is negative equity. It’s also a fairly common challenge.
But just as frequently, when our Finance Advisors talk to our customers about their situations, they report many Innovative Funding Services (IFS) customers are also confused about how they end up owing more than their car is worth.
Basic Facts about Negative Equity
1. “Upside down,” also known as “underwater,” refers to a car owner who owes more on their auto loan than the vehicle is worth.
2. It is common for you to be upside down at the outset of any financed vehicle purchase.
3. It is less common and less desirable for you to be upside down for a significant portion of your finance term.
4. Most upside down situations are typically the result of extended terms or the lack of a down payment, trade-in or a combination.
5. Average loan terms have been stretching for several years and hit an all-time high.
What Makes Negative Equity AN EVEN Bigger Problem?
6. After five years, most vehicles will begin to need replacement parts, such as tires and brakes, adding expenses to the negative equity.
7. A future spike in gas prices could unexpectedly reduce the value of vehicles that are not fuel-efficient.
How to Prevent Getting Upside Down on Your Car NOTE
8. Car buyers can avoid going or staying upside down by limiting their vehicle selection to those they can realistically afford.
9. Depreciation calculators can help car buyers predict the future value of a new vehicle.
10. Some vehicles, typically high-end luxury vehicles and low-priced subcompacts, depreciate more quickly than the industry average.
11. One can manage depreciation by taking good care of one’s vehicle and selecting a marketable brand and color, among other factors.
12. Dealers may steer some customers, especially if you have below-average credit, toward smarter purchases, but the responsibility ultimately lies with the car buyer.
What Does GAP Insurance Have To Do With It?
13. Guaranteed Asset Protection (GAP) coverage is designed to close the “gap” between the negative equity and the insurance payout for car buyers whose vehicles are stolen or damaged beyond repair.
I’m Already Upside Down. Now What?
14. Take any little extra money you can each month, and apply to the principal of your loan.
15. Trade your vehicle in for a car that is valued higher. (Be aware this may raise the interest rate or payments.)
Are you upside down on your car loan?
Auto loan refinancing may help you lower your interest rate, potentially putting your car loan in a better equity position (i.e. with less or no negative equity over time). It may also help you lower your monthly payments and/or remove someone from your loan.
Innovative Funding Services (IFS) offers up to 100% financing for those with credit scores of 525 to 850 and for a range of LTVs. Apply to refinance through IFS today.