If you are searching or want to apply for a loan to purchase or make payments on a vehicle, the last thing you want is to be upside down on your debt. Being upside down, or “underwater,” simply means that you owe more money to your lender than your car is actually worth. Sometimes if the window to pay back your loan is extended and your car has rapidly depreciated in value, you can find yourself in this situation. In order to avoid being upside down on an outstanding debt to a lender, it is important that you consider a few things and weigh your options even before you apply for the loan.
Here are 5 tips for avoiding an upside down auto loan:
Consider Depreciation Before You Buy
One of the best ways to avoid negative equity or being upside down on an auto loan is to purchase a car model that won’t depreciate to a certain point where it becomes more expensive than it is really worth. Many luxury cars will put you upside down on your auto loan almost immediately after purchasing it. You want to find a dependable car that will last and that you can sell in the worst-case scenario that you can’t pay back your loan.