Buying A Car Is Like Falling In Love - It's Hard On The Knees

by Rebecca Lane

It now takes six years on an average for most people to repay their auto loans. So you can only imagine the pain and anguish people feel as they have to make their car payments for such a long period of time - and old guy as I am, I feel your pain.

It's expensive buying a car and it only gets more so as time goes on. I'm no spring chicken alright, and anybody my age or thereabouts can tell you the rate of inflation has nothing on how price of new cars keeps going up. Yet this does not mean every car manufacturer has dollar signs in his eyes - the automobile of today is infinitely more Daedal and utilitarian than the automobile of yesterday. Sure, they were cheaper in the 1960's, but they didn't include air conditioning, air bags and video systems. Technology don't come cheap, my dear friends.

With the increase in price comes an increase in the length of time people are taking to pay off their cars. Few people pay cash; most people take out loans and pay over time. Whereas it used to take only three years on average to pay off a car loan, that figure has doubled in recent years, as it now takes six years to pay off such a loan, on average. That's a long time to pay for a car, especially if you have no plans to own it for that long.

Well, there are some advantages to having a six-year term for your car payments, as your monthly payments wouldn't be as high as they were had you been on shorter terms. Such a long loan does have a significant disadvantage, though - you can find yourself in a negative equity, or "upside down", situation. This can be a serious problem - if you should total the car in an accident, your insurance company will only pay you the value of the car, and not the amount you still owe.

A buyer is described as being upside down when he or she owes more on a car loan than the car is worth. It's easy to find yourself in an upside situation, and it can occur under any of the following circumstances:

Insufficient down payment - Cars depreciate as much as 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 may find yourself upside down immediately.

Trading in too often. It sounds like the smart and savvy thing to do, but it's not really too prudent to trade your old car for a new one, and roll what you have left to create a new loan. This practice only leads to negative equity as these are all unpaid debts.

Extremely long loan terms. Five and six year loans often lead to negative equity. By staying within three years or less, you can avoid this upside down situation quite easily.

Fortunately for you, gap insurance is what you would be needing to make sure you and your vehicle are well covered in case of untimely accidents. Gap insurance will make sure that you are protected should you have an accident while in an upside down situation. Without gap insurance, you may be making monthly car payments on a total wreck that used to be known as your car. And who wants to pay a handsome sum each month for a piece of scrap metal?

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