If
you are new to the car buying process, the likelihood
of acquiring a bad auto loan is high.
For
this matter, car buyers must familiarize themselves
with how the financing process works. A common problem
that arises with buying a car is obtaining an upside
down loan.
This
occurs when the amount owed on the vehicle is significantly
higher than it's worth. Fortunately, there are techniques
to avoid this sort of loan.
Purchase Vehicle with a Down Payment
Car values depreciate.
This
is inevitable. On the other hand, some vehicles are
subjected to rapid depreciation, which means that
the car buyer will always owe more than the vehicle's
worth.
If
planning on keeping a car until the loan is completely
paid off, a rapid depreciation is little cause for
concern. However, if you enjoy trading-in or buying
a new vehicle every two to three years, you may acquire
thousands of dollars in negative equity.
One
tactic for combating rapid depreciation is purchasing
the car with a down payment. Typical down payment
amounts are about 10% of the vehicle's price. However,
if you can afford a large down payment - perhaps 20%
or more - this will help avoid an upside down loan.
Acquire
Reasonable Loan Terms
The
average length of a car loan is five years or 60 months.
Nonetheless, some dealerships and finance companies
will stretch out the loan for 72 or 84 months.
A
longer term means lower payments. However, it also
equals more interests, and you will likely owe more
on the vehicle than it's worth. If possible, limit
loan terms to 60 months or less. For a list of reputable
auto lenders see www.abcloanguide.com.
Buy
a Used Automobile
Even
though new cars are more appealing and attractive,
they lose their value very quickly. In fact, within
the first two years, a new vehicle will depreciate
by 40%. If the car was purchased without a down payment,
and the interest rate on the loan is high, the chance
of an upside down loan is great. If possible, choose
a used automobile. Used cars also depreciate. However,
they hold their value longer than a new car.
