It’s expensive purchasing a car and it only gets way more as time goes on. As time passes, the buying price of new cars has increased faster compared to rate of inflation. This isn’t entirely because of greed on the element of automakers; cars will also be more difficult and useful than they used to be. Sure, they certainly were cheaper in the 1960’s, but they didn’t include air-con, air bags and video systems. Convenience and safety comes at a price.
With the escalation in price comes a rise in the period of time people are taking to cover off their cars. Few people pay cash; most people take out loans and pay over time. The typical car loan, which was once repaid over a period of 36 months, now averages about six years in duration. That’s quite a while to pay for a car, particularly if you haven’t any plans to possess it for that long.
Taking six years to pay for a car has its advantages, while the payments are less than they’d be over a shorter loan term. This kind of long loan comes with a significant disadvantage, though – you can find yourself in a negative equity, or “ugly”, situation how long is a car. This could be a serious problem – should you total the vehicle in an incident, your insurance company will only pay you the worthiness of the vehicle, and not the total amount you still owe.
A consumer is described to be ugly when he or she owes more on a car loan than the vehicle is worth. It’s easy to find yourself in a upside situation, and it may occur under some of the following circumstances:
Insufficient down payment – Cars depreciate around 25% the minute you drive them off the lot. In the event that you haven’t provided enough of a down payment to cover that depreciation, you may find yourself ugly immediately.
Trading in too often – Buyers prefer to trade cars in and roll their outstanding balance in to a new loan. These unpaid debts can contribute to negative equity.
A long time a loan – Five and six year loans often lead to negative equity. You can often avoid it by keeping the size of loans to 36 months or less.
In order to avoid a potential problem in the event of an incident, you must contact your insurance provider to be sure that you’ve “gap insurance.” Gap insurance will be sure that you’re protected in case you have an incident while in an ugly situation. Without gap insurance, you may find yourself still making car payments even if you no further have a car. That’s the past thing any car owner wants.