When you want to sell your car and you do not have enough money from the sale proceeds to cover the auto debt or you get insurance cover for the value of the car and not the cost of the loan, you get upside down on a car loan. This means that you still owe money on your loan amount. It is an overwhelming situation and needs a lot of discipline and hard work with a few strong and creative strategies to come out of such a loan obligation.
Reasons Of Such Loan
People do not basically understand that a car starts to depreciate at the rate of twenty per cent as soon as it is driven out of the showroom. Add to it the dealer incentives, the low down payments and the willingness of the creditors to create roll over loans are also reason strong enough to fall into such debt trap. People also do not do adequate research and over pay on auto loans. It maybe so that for similar models and make of the car you could have paid less if you did proper research and prevent being upside down.
No Down Payments
Loan disbursal procedure and marketing is also a reason for creation of such debts. To attract more business lenders of today offers loans at zero down payments and increase the tenure of the loan portraying that it is for the benefit of the borrowers which is just on the contrary. This way the borrowers take credit without even thinking about the pros and cons of it and ending up paying more that the car is worth and therefore get upside down on a car loan. As car depreciates at the rate of twenty percent you must put down a payment which is more than that or you are upside down right away.
The Unnecessary Options
You may want to look your car beautiful and luxurious and fit some accessories in it which is unnecessary. Just to show off you may want leather upholstery, sun roof, DVD player and much more which you could easily do without. These unnecessary options create more debt making it impossible to recover the cost of these options when you consider selling off your car. This results in getting you upside down in a car loan as well. You can check online to know more about such options and their effects.
Loan Roll Over
This is a popular practice among the lenders. When you owe money to the lender on your previous car, the lender may sometime allow you to roll over the negative amount of equity and merge it with the loan amount of the new car. This increases the total amount of the loan and your payments at the current rate, which is often higher than the previous. In a way it is not a single loan that you are taking, but in fact you are paying two loans at once. Therefore, you are in debt for an amount which is more than the car and you are upside once again.
People are get trapped in debt need to take steps wisely so that they can make things easy for themselves. Checking out about debt consolidation loan is a wise idea these days. But make sure when going for it you need to look for debt consolidation loan rates so that you can be sure that you are going for the right one that will make things go smooth and easy for you.