There is something that's been on my mind for some time. I hear it/see it a lot with folks I talk to. Many of whom are clients. Some who aren't, but we just give advice to.
The MOST important moment there is during car ownership is the time BEFORE we sign the proverbial dotted line. Get the facts. We have many relationships with auto dealerships and there are many who are good, honest people. But...advocate for yourself. Please.
When we sign the documents committing us to a term, we are saying, 'we promise to pay on time for xx # of months/years'. There is no circumstance where we can return the vehicle with out some serious negative information being reported. So, please, figure out before you make a purchase, 'can I afford this?' and (here's the point of this article) will this vehicle retain enough value so that when I trade or sell it, I can at least pay off the note?
I see it too often. I get a call from say... Indiana. It's a kind person on the other end. They have a auto loan somewhere in the neighborhood of 20%. They've owned it for over a year. The value of the vehicle has gone down dramatically. It is no longer worth what they owe. They now need a new vehicle and they have little choice but to trade their vehicle in, and assume that negative equity on the new loan. Meaning, they buy the new/used vehicle for $20k, but they have to roll over the negative equity over and now they are taking a loan out for $25k ($5000 in negative equity). They then roll the vehicle off the lot and the vehicle they just bought is now worth $17k, but they owe $25k. So, they were -$5000.00 in equity, now they're -$7000.00 in equity. They've just lost $2000.00 with the stroke of a pen. See the pattern here??
I've mentioned this before, but when we pay high interest on a depreciating asset such as a vehicle, we are getting hurt several ways. On most loans, we pay more interest up front, which means we are paying less on the principle up front. But, since we are driving the vehicle, it is depreciating much faster than we are paying it off. This is what results in being 'upside down' on a vehicle.
So please, make sure the car is worth what you are paying for it. Go to http://www.kbb.com/ and price out the car or truck you are wanting to buy. If it is worth less than what the dealership is quoting, this will give you leverage. Then, figure out the loan term and compare it to what the vehicle is going to be worth in say, four years. If in four years the vehicle is worth much less than what you still owe on it, reconsider your purchase. Please.
If any of this doesn't make sense, please do call us. Yes, we are a credit repair organization. But, we help folks out with these decisions all the time. Remember friends, advocate for yourselves.
Ed-Jack Dvorak is National Affiliate Liaison at Credit Dr., a national credit restoration company. He works with clients and creditors to improve credit profiles.