Get Rid Of Negative Equity Car Loan

Get Rid Of Negative Equity Car Loan – Canadian car brokers help Canadians get better car loans with lower rates, lower payments and up to $30,000 back

The average Canadian now has nearly $73,000 in total debt. Non-mortgage debt, which includes credit card use and, yes, car loans, accounts for nearly a third of that, or $23,800.

Get Rid Of Negative Equity Car Loan

Get Rid Of Negative Equity Car Loan

In addition, almost one in three vehicles traded had negative equity in 2018. All of these “negative common stocks” had an average value of -$7,051.

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If you’re one of these people, you’re probably thinking, “How can I get rid of the negative value on my car?” You can even be sure what these negative amounts are and how they affect your finances.

But don’t worry because we’re here to sort things out for you. Read on to learn about negative value cars and what to do about it!

The term “equity” refers to the ownership of assets to which “liabilities” are attached. Liabilities are usually in the form of outstanding debts or loans.

When it comes to car loan obligations, it usually refers to how much you owe the lender. Negative equity occurs when the amount owed is higher than the actual value of the car. Some people also refer to these as “upside down” or “underwater” car loans.

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Either way, this means that your car loan provider owes you more money than the car is worth.

If you know these two key factors, it’s pretty easy to tell if you have negative equity. Next, subtract the outstanding loan balance from the market value of your vehicle. If it comes out negative, then you have negative equity.

As an example, we’ll use the average outstanding car loan debt of $20,000 in Canada. Let’s also say that the true market value of the vehicle is now only $15,000.

Get Rid Of Negative Equity Car Loan

So $15,000 (the market value of your vehicle) minus $20,000 (your car loan balance). This means you have negative equity equal to $5,000.

How Much Negative Equity Can I Roll Into An Auto Loan?

Depreciation, interest rates, credit scores and down payments all play a role here. The same applies to the loan term you choose, the type of car you drive and your driving behaviour.

We’ll quickly touch on all of the factors below to give you a better understanding of how you can eliminate negative equity.

New cars are depreciated on average only in the first year at a rate of 30 to 40%. Most tolerate depreciation better, but others lose even more. Japanese cars like Toyota and Honda seem to hold the most value over time.

You can also have negative equity if your car has a higher depreciation rate. The same is true if you pay small installments on your car loan each month.

How Car Owners Can Cope With Rising Negative Equity

In Canada, car loan interest rates average between 4.5% and 10%. The lower the interest rate you can get, the less you will owe the lender overall. This in turn reduces your risk of going “underwater” on your car loan.

Traditional auto lenders, such as banks, take credit scores seriously. Therefore, they tend to charge higher interest rates to Canadians with low or poor scores. Most other such applicants are rejected outright.

Still, your credit score is one of the most important things you should know before applying for a car loan. You can get it for free from Canadian Auto Brokers and it will let you know how you are doing financially. If it’s too low, don’t risk getting credit checks from banks that can lower it even further.

Get Rid Of Negative Equity Car Loan

A down payment on a car loan reduces the amount of capital the lender has to raise. As a result, the borrower is less liable to the lending institution.

Getting Out Of Upside Down Auto Loans

This also means that the interest rate applies to a smaller loan amount. So you can enjoy lower interest payments.

Overall, the down payment reduces the difference between the borrowed money and the actual value of the car. Conversely, negative equity can exist if the down payment is not paid.

If you can pay off your car loan within five years, you should secure a five-year loan. This is because the longer the term, the higher the interest. This in turn increases the total amount you owe on your car.

The make and model of your vehicle also affects its price, so the bigger your car, the higher the price it will fetch. Luxury car insurance is even more expensive, so that too can add to the cost of your car.

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Depending on how you ride it, a lot of wear and tear on your ride will result in faster depreciation. Lack of proper maintenance also leads to faster deterioration. All of these can lower your car’s value compared to similar makes and models.

A negative value is usually not a big problem if you want to keep the car as long as it will serve you. In Canada, this often means driving the same vehicle for an average of 12.88 years. In this case, you may not even know that you had negative equity at some point.

If you have more on your car loan than its actual value, it will be a problem if you have to replace it with a new car in a few years. If you happen to have negative equity, you can no longer use your old car to pay for a new one. You would have to shell out even more than you budgeted for a brand new vehicle.

Get Rid Of Negative Equity Car Loan

Things can get worse if you have a negative value and your car is completely destroyed in an accident. Your auto insurance company will write you a check, but it still won’t be enough to pay off the entire car loan debt. You would have to cover the rest from your own money.

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The same thing happens if you get sick, lose your job or face a difficult life event that makes you unable to repay the loan. You cannot sell the vehicle just because it still has liabilities. Even if you find a willing buyer, the proceeds from the sale still won’t be enough to pay off your car loan.

Refinancing is one of your best options for getting rid of negative equity on your vehicle. You can even get a cash back program or buy a new car and get rid of the amount you still have on your old car!

Most Canadians can’t afford not to own a vehicle, considering how 11.4 million of them drive to work. If going car-free isn’t for you, you may want to consider refinancing your current car loan.

Refinancing allows you to lower your car loan interest rate. With loan refinancing, you get a new loan to replace your old one (and probably an increase as well). This is a new contract that allows you to get not only a reduced interest rate, but also better payment terms.

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When refinancing a car loan, you can change the maturity of the loan to a shorter one. This can help you get a fraudulent loan because you will pay more for the loan. Making higher payments on your debt reduces the negative equity on your car.

If you manage to reduce the interest rate, it means that your loan will be more affordable. The lower the rate, the less money goes to paying interest. At the same time, a larger part of your loan repayments covers the actual principal of the loan.

The smaller your loan principal, the less negative your equity. Also remember that refinancing will not involve selling your car to get out of default. So you don’t have to worry about not being able to go to work.

Get Rid Of Negative Equity Car Loan

When considering refinancing, be sure to check for other benefits, such as cash back. You can even get up to $30,000 cash back when you refinance your current car! This still depends on the type of vehicle you have, but programs like these can help balance your equity.

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The same cashback offers usually apply to new car sales. If you are approved, you can enjoy a huge cash rebate that can get you out of negative equity! At the very least, the cash you get will wipe out much of what you still owe on the old car.

In addition to cash back offers, brokers also offer referral programs. You get paid every time someone you refer to a broker contracts with that firm. The money you earn can then be used to make extra payments on your own car loan.

By paying more towards your car debt, you also reduce your negative equity. Every additional payment you make will help you get out of default on your loan.

There are many other ways to earn extra income, such as performing outside of your main job. That’s actually the norm in the Great White North, with one in three Canadians having a “side hustle.”

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