The term “underwater” or “upside-down” is used when your car value is less than loan. This is also known as negative equity. This occurrence happens due to your car’s depreciating in value over time.
There are factors that can affect the value of your car. In this article, we’ll look at how one gets their car into an upside-down situation, and we’ll also your options.
How One Gets Their Car Loan Underwater
There’s always excitement in buying a new car. However, that feeling may cloud our judgment and rational thinking. Here are some ways how you might have gotten an upside-down deal on your car:
- Not Enough Research – Many people don’t do enough research on their way to buying a new car. For example, if you are looking at a $30,000 car while there are similar models selling for $27,000, then you’re already underwater on your deal. Make sure to contact a loan or insurance expert so they can give you advice on the best deals available on the market.
- Additional Unnecessary Options – Things like a sunroof, convertible, or other things that you don’t need can add to the burden of your monthly bills. These additional payments won’t be paid for when you try to sell your car.
- No Down Payment or No Money-Down Loans – Cars depreciate almost 20% at the time when you hit the first traffic light. They also decrease 50% in value in their third year. If you don’t put 20% of down on your car, then you’re underwater already.
Protect your investment
Again, cars depreciate quickly. This makes it hard for the owner to catch up with their car’s depreciation. However, there are things you can do if your car value is less than loan.
Auto Loan/Lease Coverage Endorsement is optional coverage is available from a variety of insurance companies.
- Leased vehicles: Reimburses you for the difference between the amount due on the lease and the auto’s actual cash value if there is a total loss.
- Owned vehicles: Pays outstanding debt if there is total loss or damage to the vehicle and you owe more than the actual cash value of the automobile.
Generally, this optional coverage has exclusions, and you should talk to your insurance agent can answer your questions.
Auto Replacement Cost Coverage may also be available for an added premium. A new car owner may buy coverage on the vehicle’s replacement cost rather than its depreciated value. There are some limitations, and you should talk to your insurance agent. You may find that the extra protection is worth the extra cost.
Contact a Professional
It’s hard being in an upside-down loan. However, there are people out there that are ready to help. At Farmers Union Insurance in ND, we can help you find a solution to your car loan problems, life insurance problems, and more. Talk to our insurance professionals today!
