Negative Equity Car: What It is and How to Avoid It

Things are awfully bright and shiny when you first buy a car. It’s very easy to get excited about driving home in a great vehicle, especially if you had been waiting to do it for a while. But once the confetti settles, things may not look so rosy, especially where depreciation is concerned. Sometimes it doesn’t take long for negative equity car to occur.

What is Negative Equity?

This refers to the amount you owe on your car compared to its value. For example, if you still need to pay off $12,000 but the car is now worth $9,000, you have a negative equity of $3,000.

Who Does Negative Equity Happen?

Remember that depreciation we just talked about? This is the main culprit of negative equity. New cars can lose up to 40% of their value in just their first four years, so you can see how quickly you may be paying for something not even close to what it was worth when you first got it. Another reason for negative equity is a long loan term. The longer you’re paying off your car, the more its value will decrease.

What to do About Negative Equity

Fortunately, car shoppers don’t have to fall into the negative equity trap. One way to avoid it is to go with a pre-owned vehicle. If you choose a car that’s four years old or older, you get to skip that large initial depreciation. The other thing you can do is pick a shorter loan term. This will raise your monthly payments, but you’ll get it paid off faster and pay less interest.

If you have other questions about negative equity or anything else related to car loans or financing, get in touch with Carlen Motors near Carthage.