Loans - Negative Equity Not an Issue on Car Loans - 07/05/2008

Many have been expressing worries over the possibility of being in negative equity with their car loans. Felix Salmon, a market expert, says that negative equity is not something to worry about with car loans.

Quite unlike mortgages, no one ever expects when they take out a loan on their car that the car will rise in value. Both the seller and the buyer are fully aware that the car will fall in price.

The car should be considered “a liability, not an asset” according to Mr Salmon. In times of rising petrol prices and expenses, no one ever bought their car as an investment, it is an ongoing expense.

It should not be a worry for buyers who cannot keep up their repayments either, because unlike with home repossessions, the lender does not expect to repaid in full due to the acknowledged rapid rate at which cars decrease in value.

Mr Salmon states that the horrors of "negative equity in the mortgage market simply don't exist in the auto market.”

Auto loans have boomed in the past few years, along with all types of credit, but Mr Salmon says that this should still be viewed as a good thing and people should not panic about taking out a loan to afford their dream car.

Negative equity on a car loan is to be expected, however, if you wish to keep negative equity to a minimum, the larger down payment you make the less you will have. As with all loans a larger down payment will also result in preferential interest rates.

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THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPATMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT
MISSING PAYMENTS WILL HAVE SEVERE CONSEQUENCES AND MAY MAKE OBTAINING CREDIT MORE DIFFICULT IN THE FUTURE.


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