Many new drivers don’t consider how their car’s value will change over time. Your car’s value, or equity, will show you how far ahead or behind you are on your loan. Depending on how long you’ve owned it, you likely wonder: how much is my car worth, and how does it affect my loan?
Below, we’ll discuss the difference between positive and negative equity, how it affects you financially, and how you can prevent your loan from turning “upside-down.” Keep reading!
What Is Equity on a Vehicle?
Equity is the difference between a vehicle’s resale value and the amount you still owe on your auto loan. This value can be displayed either as a percentage of the car’s current resale value or in its literal dollar amount. There are two types of equity for a vehicle – positive and negative. If you have positive equity, your car is now worth more money than you owe, meaning you’re keeping up with your loan payments in a timely manner. However, if your car has negative equity, this means your car is worth less than you now owe, and your loan is now considered “upside-down.”
The Risk of Negative Equity, or an “Upside-Down” Loan
There are several pitfalls of acquiring negative equity on your car loan. For example, if you need to sell your vehicle at the last minute, you may lose quite a bit of money, as you may have to borrow more funds to pay off the loan.
Or, if you get into a car accident and your vehicle’s equity is in the red, your insurance company may not be able to cover the amount still owing, placing your car at a total loss. Overall, acquiring negative equity on your vehicle can open the door to several financial risks.
How to Avoid an Upside-Down Loan
So, how can you avoid an upside-down loan? One of the best things you can do is examine your current financial situation before purchasing a vehicle. Do some research to figure out the type of car make and model you can reasonably afford, and find a lender that offers a loan payment schedule that is within your budget.
If you’d like help finding the right car and loan for your needs, our team at AutoLoan Hub is here to smooth the process! We offer a hassle-free service that takes care of all the logistics of car financing. We deal directly with the car dealership to ensure you’re getting the best price point possible, and we’ll help you find a loan with terms that fit your circumstances.
Contact AutoLoan Hub Today for a Hassle-Free Car Loan
Are you ready to purchase your next vehicle? Contact AutoLoan Hub today to learn more about our hassle-free loan and car financing process. If you’d like to avoid acquiring negative equity on your next purchase, trust our experts to help you find a car and loan that fits your budget.
