Throughout the month of May, AMVIC is raising awareness on the financial costs of buying and owning a vehicle.
Previously the topic was on liens. This week, let’s discuss negative equity. Have you ever heard of negative equity? That is when the amount you owe on a vehicle is actually more than the current value of the vehicle. If you decide to trade in your vehicle before the end of your loan, the debt from your previous purchase might carry over to your new vehicle as part of the new trade deal. If you continue this cycle you may find yourself in the position of paying higher interest rates or being refused financing due to a high debt load. Also, the vehicle you are purchasing may not be sufficient to secure the now substantially higher than car value loan.
Financing over a longer term may help you get a more expensive vehicle, however it also means it will take longer to pay off that vehicle. All costs of owning a vehicle, including depreciation, ongoing maintenance, insurance and fuel should be considered before you make your purchase.
Buyers should also ensure dealers are outlining any negative equity in all new financing and purchasing documents to avoid allegations of fraud from the finance company or financial institution.
Being a smart shopper and understanding the actual cost of credit will help you avoid problems down the road. Make sure to ask questions about the interest rate and any penalties you may incur for paying the loan off early.
Arm yourself with knowledge of your consumer rights and other useful tips by visiting amvic.org.
Next week, we look into the option of leasing.
Did you miss a Money Month bulletin?