In auto financing, equity is just a fancy term that means the portion of your ownership in your vehicle. If the equity is positive, it means the value of your vehicle is more than what you owe (and vice versa). Other than building some equity over time as you repay monthly, making a large down payment is one of the best ways to keep your auto loan from turning upside down.
In this day and age, when most car buyers prefer to put down as little as possible, it pays for you to realize the real value of auto equity and its serious implications should it turn negative. You must make every effort to make your vehicle equity positive because you never know when it would come into play.
In Case You Forget Your Vehicle Depreciates
Whether you buy a brand-new or a used Chevy Cruze in Indiana, from blossomchevrolet.com, driving it off the lot can cut down its market value at about 20%. This means if you choose to pay nothing or just a miniscule amount initially, there’s a great chance your loan is already upside down the moment you bring your new ride home.
In Case It Gets Stolen or Totaled
Should something happen to your vehicle, the insurance company would only pay for its market value — not the remaining balance on your loan. This means if your vehicle crashes or falls victim to thieves before you’re able to build positive equity, you’d end up owing a loan for a vehicle you can’t even drive anymore.
In Case You Want to Trade It In Later On
Positive equity can be a useful bargaining tool. If you want to trade in your unpaid vehicle, you can obtain a fresh loan with a lower amount for a new vehicle with no fuss if the value of your old one is greater than what you owe in your current loan.
Positive auto equity is all sunshine and rainbows. Even if you want to minimize your out-of-pocket expenses at the time of starting the loan, it’s not an excuse to disregard the costly consequences of putting down a meager amount. Save up and wait until you’re in a better financial shape to buy a vehicle.