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Going Upside Down On A Car Loan In Hamilton

Going Upside Down On A Car Loan In Hamilton

Going upside down on an auto loan is the informal term for negative equity. Where you owe more on your auto loan than the car is worth. Most loans go through this stage and it really is nothing to worry about over the long term.


Our Hamilton auto loan team explains what going upside down is and what to do about it.


Going upside down on an auto loan in Hamilton


Going upside down on an auto loan usually happens when you buy a new car. It can happen with used cars too if you don’t have much of a down payment.


It’s where the auto loan amount is more than the car is currently worth and is usually caused by depreciation.


For example, you buy a new car for $45,000, use $10,000 as a down payment and have a loan of $35,000. During the first year, the car will lose up to 35% of its value, so will be worth less than the $35,000 amount still outstanding.


Even though you’re making payments, the rate of depreciation is faster than the rate you’re paying the loan off. This results in negative equity, or going upside down.


What to do about negative equity


If you’re planning on keeping the car for a while, you don’t have to do anything about negative equity. It evens itself out over time and is just a temporary situation.


Depreciation slows so the amount you’re paying on the loan has time to catch up. Gradually, you overtake the amount until you’re the right way up again.


There are things you can do about it if you really want to though.


Lump sum payment


You can make a lump sum payment on your Hamilton auto loan. Many lenders will allow a percentage overpayment and you can use that to even the score.


All you need to do is find out how much you’re upside down from the lender and arrange to make the payment with them. This will usually be via bank deposit but some lenders can take the money from your account upon your instruction.


Regular auto loan overpayments


Lots of auto loans also allow monthly overpayments. We often recommend this tactic to pay off loans faster. Rather than paying your default payment each month, you add $50-100 per month to pay off more of the principal amount.


You can also use rounding up to achieve the same thing. Say your payment is $345 per month. You could round up to $400 per month and pay off an extra $55 per month. As long as you specify that it comes off the principal and not interest, you’ll get back in front faster.


You don’t have to do anything about negative equity but you can if you want to. These methods also have the added benefit of paying off your loan faster, which has its own benefits!


We will use all our skill and experience to deliver the lowest possible Hamilton auto loan rates, guaranteed. Contact Car Nation Canada Direct to learn how we can help.


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