Dealing with Negative Equity in Used Cars

Some of the most common and dreaded finance-related terms when talking about car loans are “upside down” and “underwater.” Technically known as negative equity, it’s worth understanding if you’re shopping for used cars in Newport News, VA. Here at Casey Auto Group, our finance professionals are happy to explain this issue, how to avoid it, and how to fix it.

What is Negative Equity?

Simply put, negative equity means that your car loan balance exceeds the vehicle’s current market value. This happens for several reasons, including if you made a small down payment, stretched your loan terms, or your car depreciated faster than expected.

Why You Should Try to Fix Negative Equity

There are some compelling reasons to avoid negative equity. For example, if your car is totaled, most insurance policies only cover its current value, leaving you to pay the remaining balance. Negative equity also makes it more difficult to trade in or sell your car without covering the difference out of pocket.

Strategies for Getting Right-Side Up

• Extra Payments: Pay more than your monthly minimum payment, which ensures the extra amount goes to the principal.
• Refinance Your Loan: Refinancing your loan to a shorter term with a lower interest rate may increase your monthly payment, but it can help you pay off the loan faster.
• Be Patient: If you continue making timely payments, your car’s value will naturally depreciate slower over time, which allows you to build equity.

Avoiding Negative Equity

In order to avoid negative equity on future used car loans, consider making a down payment of at least 20 percent, a shorter loan term, and purchasing a car with a slower depreciation rate.

Explore Used Car Financing Near Newport News, VA

Here at Casey Auto Group, our team of friendly finance professionals is happy to share our tips on how to avoid negative equity when you purchase your car. We’ll help guide you through the used car purchasing process and help you prevent any negative equity issues. Visit us today!