When you need to purchase a vehicle from a dealership, the first thing you do is get an auto loan. The beauty of this type of credit is that it breaks down the cost of the car worth thousands of dollars, which makes it easy to pay off your debt.
However, there is a common financial situation affecting several Canadians every year, negative equity auto loans. Vehicles tend to depreciate quickly, especially the newer variants. As a result, there will be a situation, where you owe more than the present value of your car.
Wait, why is a negative equity auto loan going to be a problem? If you try to sell your vehicle, you still need to continue paying the creditor, which isn’t a good situation.
How did you get a negative equity auto loan?
When you approach a dealership, they will try to convince you to purchase an expensive vehicle. They also offer their in-house financing options, which makes it easy to get the car. You should never fall for this sales tactic, as it isn’t a favourable situation.
However, if you bought a vehicle that is out of your budget, you will end up with an auto loan, which falls into the negative equity category. Another common reason why you will find yourself in this situation is when you take an auto loan for too long, or the rate of interest is extremely high.
Keep in mind that a long car loan tenure looks great on paper, as the monthly payments are affordable. However, you will end up paying a sum higher than the value of your vehicle.
What should you do in this situation?
While there are several techniques you can use to get out of this circumstance, the best and most effective option is to refinance your auto loan. When you go this route, the lender will give you a new line of credit, which meets your current financial situation. The creditor will either decrease the rate of interest or increase the tenure of your loan.
If you want to refinance your auto loan, so that it doesn’t become negative equity, contact TakeTheDrive today!