When planning to buy a used car, there are many variables to know about. One thing that can occur during used car financing is negative equity. You will want to try to avoid this, and Mike Toler Chrysler Dodge Jeep® RAM FIAT explains what it is and ways to prevent it.
What is Negative Equity?
Negative equity happens when the value of your car is less than what you owe for it. For example, if your vehicle is worth $8,000 but you owe $10,000, you have negative equity of $2,000.
The Consequences of Negative Equity
There are many downsides to negative equity. First of all, if you decide to sell your car, you will probably lose money in the sale. It could require a bigger loan if you want to trade it in when getting another vehicle. Plus, if the car is stolen or totaled in an accident, insurance will only cover its actual value, so you might have to pay for a vehicle you no longer have.
Ways to Avoid Negative Equity
The good news with negative equity is that there are ways to avoid it. Putting down a sizable down payment is one smart tactic, as cars can lose considerable value in their first few years. It’s also important not to rack up the mileage or neglect maintenance or repairs, as this can also result in a drop in value. While a long-term loan with lower monthly payments may be tempting, this increases the risk of negative equity. Finally, consider GAP insurance since it will cover replacement value rather than actual value should the worst happen.
Used Car Finance Questions? Mike Toler Has Answers.
Do you have further questions about negative equity or vehicle financing? Get in touch with Mike Toler Chrysler Dodge Jeep RAM FIAT in Morehead City, NC. Our experts will lead you to sustainable car financing that gets you the car you want while keeping you on budget!
