It’s expensive buying a car and it only gets moreso 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 due to greed on the section of automakers; cars will also be more difficult and useful than they used to be. Sure, they certainly were cheaper in the 1960’s, however they didn’t include ac, air bags and video systems. Convenience and safety comes at a price.
With the upsurge in price comes a growth in the length of time individuals are taking to cover off their cars. Few people pay cash; most people take out loans and pay over time. The common car loan, which was previously repaid over an amount of four years, now averages about six years in duration. That’s quite a while to fund a vehicle, particularly if you have no plans to possess it for that long.
Taking six years to fund a vehicle has its advantages, while the payments are lower than they’d be over a smaller loan term. This kind of long loan has an important disadvantage, though – you can find yourself in an adverse equity, or “inverted”, situation. This could be a serious problem – should you total the car in an accident, your insurance company will simply pay you the worth of the car, and not the quantity you still owe.
A consumer is described to be inverted when he or she owes more on a vehicle loan than the car is worth. It’s easy to find yourself in an 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 of the lot. If you haven’t provided enough of a down payment to cover that depreciation, you might find yourself inverted immediately.
Trading in too often – Buyers prefer to trade cars in and roll their outstanding balance into a new loan how long is a car. These unpaid debts can donate to negative equity.
Too much time a loan – Five and six year loans often result in negative equity. You can often avoid it by keeping the length of loans to four years or less.
In order to avoid a potential problem in the event of an accident, you must contact your insurance provider to make sure that you have “gap insurance.” Gap insurance will make sure that you are protected in case you have an accident whilst in an inverted situation. Without gap insurance, you might find yourself still making car payments while you no further have a car. That is the past thing any car owner wants.