The moment a shiny new car is driven off the forecourt the proud new owner loses money. A car will depreciate in value before it is even parked in the garage. Often consumers fail to appreciate the consequences of signing up for auto loan financing, being more smitten with their purchase than the rudiments of the paperwork. The lure of no or low deposits and the proliferation of bad credit car loans, results in many drivers being stuck with an upside down car loan. Simply put they owe more on their car loan than their vehicle is worth. Refinancing these upside down car loans is an attractive option to take back financial control.
Upside down loans can be avoided by making a sizeable down payment and opting for the highest affordable monthly payments over the shortest term. However many buyers pursue smaller payments over the long term, combined with low deposits, in an effort to reduce monthly installment payments. This has resulted in an estimated 40% of consumers now being upside down on their loans, with an average negative equity figure of $2,200, according to figures released from Edmonds.com.
Drivers in this situation have the option of refinancing, or driving the car until the loan is paid off. If they sell the vehicle they will still owe the balance of the loan. Refinancing an upside down car loan is a viable option for several reasons. Those who signed up for bad credit loans may well find their credit history has improved by paying the car loan on time, thus they can elect to refinance to a lower interest rate to reduce the payments.
Refinancing to reduce the term of the loan and increase the monthly payments is another solution. Combining a shorter term with a reduced interest rate is the best case scenario as it will put the driver back in control of the loan and also save money in the long term on interest charges.
In order to get the best refinancing deal it pays to know the terms of the current loan, if any penalties apply, and ones credit score. Comparison shopping new rates on line through car financing sites or financial broker sites will give a guide to costs, but any fees or penalties need to be factored into the equation.
A good method to is to make use of online car loan repayment calculators. Online rates can then be compared to bank rates, or the current lender can be approached. Always shop around to find the best deal available.
Refinancing an upside down car loan is the smart solution to gain equity in the vehicle, or to reduce any loss which would be incurred when the vehicle is sold. Drivers in this position will most likely be influenced to save up a good deposit the next time, or purchase a vehicle in cash.
Source: Edmonds.com