During the housing crisis, there was a lot of talk of homeowners who were underwater on their homes—owing more on the loan than the home was worth. Loan companies, along with the federal government, looked for ways to help and for some homeowners, help was found.
What isn’t talked about nearly as much is underwater automobiles. As many as 6 million people were upside down on their car loan at the height of the financial crisis and much like homes, many are still hurting today.
It doesn’t take a financial crisis to end up with an underwater loan. Here’s how to prevent it from happening to you.
1. Pre-qualify for the loan- The lower the interest rate, the less likely you are to become upside down. Getting a loan outside of the dealership will probably result in a lower interest rate. Pre-qualification allows you to walk into the dealership with the loan details in place.
3. You need a down payment- A down payment not only lowers your total loan amount, it gets you ahead of the depreciation. Aim for 20 percent down to counteract the early depreciation. The average down payment is currently around 10 percent—dangerously low, according to some experts.
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