The world of car loans can be a confusing place when terms like underwater car loans are thrown around and everyone assumes you know what they are talking about. It may come as a surprise to you, an underwater car loan has nothing to do with a flooded car.
Being underwater on a car means you owe more than what a car is really worth. In this day and age, it’s not hard to get caught up in what is considered a bad situation.
Finding the value of your car
Finding the value of your car is not as difficult as you think. Start by going to a website that offers a service. Auto Trader is all reputable sites that are highly capable of getting the job done. You must enter your year, product, model, mileage, wear, and all special features.
Ask how much you owe: I know it’s not something you want to see, but knowing how much you owe for your car loan is important. You probably get a statement every month that is included with your account from your auto lender. Otherwise, I hope you can access your account online to determine your balance. If all else fails, call your lender and ask how much is left on your loan.
Compare Customs Value Verse of the Car’s Loan
Now it’s time to make a comparison. Do you owe more on your car loan than your vehicle is worth? If so, how much?
If you’re in the hundreds of dollars, I’d say you’re probably fine. More than that, you’re certainly underwater on a car loan.
Pillars to be underwater on a car loan: So what’s the big deal? Does it really matter if you are underwater on a car loan? The answer is that it is definitely important.
If you are at a complete loss or need to sell your vehicle, you will have to pay the difference between what the car is worth and what you owe. As you make comparisons, you might see a difference of thousands of dollars. Can you afford to pay the difference tomorrow if you are in a big accident?
How to avoid being underwater on a car loan
- The best way to avoid being underwater on a car loan is to pay 20% at the time of purchase. Depreciation along with taxes, tariffs, and guarantees all make it difficult to progress on your car loan without much action.
- Choose an auto loan term that is 48 months or less. The longer your car loan, the longer it will take to get ahead of the game.
- Buy loss insurance. Gap insurance covers the difference between what you owe and what your car is worth. However, what many people do not say is that the gap will not cover car loan guarantees, and in some states, tax and property fees. So, gap insurance is really only useful to cover depression. Pay the warranty costs along with your taxes and fees at the time of purchase, never tuck them into your car loan if you want to stay alive.