Are You Upside-Down? Part 1 (Car Buying Tips)

If you owe more on your current vehicle than what it is worth, then you are said to have negative equity or are said to be upside-down. This is actually quite common. When you buy a vehicle, it depreciates nearly 20% soon after you drive it off the lot. At this point, you have not made any payments on it, so you are automatically upside-down. At some point, usually about 2 years into your car loan, you would have paid off enough so that you will owe less than it is worth. Therefore, if your car is less than 2 years old, you are likely upside-down. The general consensus is never to trade in a vehicle if this is the case. Here is how it works.

Suppose that you are buying a vehicle for $20,000, your trade in is worth $3000 and you owe $5000 on this trade-in. In other words, you would be upside-down by $2,000 since you owe $2,000 more on your vehicle than what it is worth. Here is a rough estimate of the amount you would finance. Taxes, titles and fees are not considered here.

$20,000 - $3,000 + $5,000 = $22,000

In other words, you would owe the $20,000 for the new vehicle plus an additional $2,000 for covering the negative equity in the current vehicle.
First of all, your $20,000 vehicle is soon worth $16,000 after you take it home and you owe $22,000. Just like that you are now $6,000 upside-down. This is not a good situation to be in!

This post was taken from The Car Buying Bible (www.carbuyingbible.com), a 162-page car buying guide full of money saving car buying advice. It comes with the best car loan calculator you will ever find. The car buying tips in this powerful presentation can save you $5,000 or more on every car you ever buy. Just imagine the lifetime savings on that!