Avoid Being Upside Down In Your Car Loan
A low- or no-down payment, a longer-term loan, and a vehicle that rapidly depreciates in value in the first two years can cause you to be "upside down" in your car loan. The term means you owe more for the car than it is worth. It's not unusual for a buyer to be upside down in a car loan a couple of years into a five- or six-year loan.
Consumer experts recommend making a down payment of 20% or more and financing for no longer than four years to avoid being upside down. Not everyone can do this. Some alternatives:
- Don't finance a car for more months than you want to own it
- Make the biggest down payment you can
- Choose a shorter-term loan if possible
- Buy a vehicle that will hold its value longer
If you find that you're upside down in a loan, experts advise holding onto the car as long as you can--at least until the amount left on the loan matches the car's trade-in value. If you need to get rid of it, try selling it yourself or consider bundling the negative equity from the car with a loan on a new car. If possible, accelerate your loan payments to avoid being upside down in your new loan.
Copyright 2008 Credit Union National Association Inc. Information subject to change without notice. For use with members of a single credit union. All other rights reserved.
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