Negative equity is a bad financial position to find yourself in as it shows that one owes more than what his vehicle really worth for. An upside-down situation in your auto loan will jeopardize your financial positioning now and the future as the negative equity of your current auto loan will roll into your new auto loan if you have no way to “mend” the negative equity of your current auto loan before requesting for a new loan.The rolling effect of the negative equity will get significantly greater if your new auto loan is for high, and your down-payment is low, with your repayment tenure of 48 months or even longer. You will find yourself in another upside down situation which is worst than you were originally was with the new vehicle.Therefore it is essential for affected and this will further roll into the future. So are there any possible ways to avoid getting into an upside-down situation where all of us should try to avoid getting into? The answer is yes, here are some of the key tips on how we can prevent negative equity to happen;a. Always try to keep your spending within your means – getting yourself an expensive car with a small down-payment and a lengthy loan period will get yourself into a negative equity position which you will be regret with.- Keep driving your current car as long as you can, and settle your auto loans with consistent repayments with no lapse is a good approach.
- Humble yourself with what you can manage and not to overburden yourself with something which will be “tying” you up for the next 6-7 years which does not worth the trouble on.b. Trade in your vehicle with the highest possible trade-in value which you are able to get. Check from the Internet or local publications on similar vehicles which have been selling for. This will be able to give you a general idea on the retail price of your vehicle.c. Maintain your vehicle in good condition – No matter it is on the internal engine, or any of the mechanical components and the external cosmetic condition of the vehicle, good maintenance of your car will bring in a better price for you, which can be higher by a few hundreds of dollars as compared to similar vehicle with average maintenance.d. Always get yourself a vehicle which has good resell value or low depreciation rate, so that its trade-in value can be competitively well above the market most of the time, which will help to alleviate the possibility of negative equity happening to you.e. Keep the financing tenure short with no longer than 48 months, and this might not be possible for all people, but at the minimum, try not to exceed more than 72 months for an auto loan repayment, to avoid the extended interests which going to be top up on your principal for the extended months.f. Ask for a bi-weekly payment instead of a monthly payment. This is because by paying twice per month, you will be able to clear off your auto loan sooner than you originally expect to be, at the same time, you will be able to save up to a few hundreds of dollars on your overall auto loan over the entire course of your auto loan.