Have you ever heard the phrase, “upside down on your car loan?” This means you owe more on your loan than your vehicle is worth. For example, if you have a loan with a $17,000 balance on a vehicle that only has a market value of $13,000, you have negative equity, meaning you’re $4,000 upside down on your loan.
What causes this? It can happen with a small down payment, with a loan longer than five years on a vehicle that loses value, when you’ve overpaid for a vehicle and have a high interest rate, or if you’ve missed payments or made partial payments.
On the other hand, if you have a vehicle that’s valued at $17,000, and the loan balance (also called payoff amount) is $15,000, you have $2,000 in positive equity. Why does this matter? If you decide to trade in your vehicle for a newer model, or if you’ve been in a collision that has resulted in a total loss, you don’t want to be left holding the bag—and upside-down loan.
When you have positive equity, you can pay off your loan with the vehicle’s selling price or trade-in value. Any positive equity left over can be used to make a down payment on your next vehicle. But if you have negative equity, you won’t have anything to put toward your new vehicle. Instead, you’ll have to figure out a way to pay off the rest of your old loan, so you can get your vehicle’s title to trade it in or sell it. You can’t have financing on a vehicle you no longer own because your vehicle was collateral for your loan.
By design, On the Road Lending’s program ensures that you won’t find yourself upside down on your loan. We source slightly used vehicles for our clients because new vehicles depreciate as soon as you drive off the lot. We make sure you can afford the vehicle you purchase and that it isn’t overpriced. Then it’s up to you. If you make payments on time or make extra payments, you should never be upside-down on your loan. But even if you’ve made partial payments or made payments late, we’re still here to help. We can refinance your vehicle and get you right-side up again!
If you’re not an On the Road Lending client, and have a high interest rate loan, chances are you could be upside down. If you’re being charged more than 12.5%, we’d be happy to review your loan and see if you’re a candidate for refinancing.
If you think you might be a candidate for refinancing, email me today!
Be well!
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