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Being “Underwater” Is A Very Bad Thing With A Car Loan!

July 7, 2017

If you are a lover of the sea and all the life it contains, then you know that the underwater world is filled with many awesome wonders. Just grab a snorkel or a scuba tank, and you can experience for yourself what an amazing place it truly is.

But if you have financed your car with a long-term loan, you may end up having the type of “underwater” experience that will make you feel like a great white shark is about to make you his dinner! This is a situation you will definitely want to avoid!

It Starts When You Finance Your Car For A Long, Long Time

Back when you financed your last new car, you may have wanted something more expensive than you really could afford. On top of that, you didn’t have a lot to put down, so you financed most of the cost of the car. Then, because you needed a low payment, you went out to six or seven years on the term of the loan.

It sure seemed like a good idea at the time. A nice new car, a nice low payment, what’s the problem? Well, friend, you didn’t realize that after about three years, a nice new car would catch your eye. Just drive down to the dealer and trade it in on the new one, right? Not so fast!

Congratulations, You Are Now Underwater!

You are in for a shock! The trade-in value of your current car, three years in, is thousands less than the amount you will have to lay out to pay off the last three or four years’ remaining on your loan balance. This negative difference between the value and the payoff is what is known as being “underwater” on your car loan.

The solution? You roll your extra newfound debt into the loan on the new car.

Congratulations! You have just made a bad situation much, much worse. You now get to make even larger payments for a very long time to cover both your new car and the “underwater” part of your previous car. This is extremely bad financial management. Don’t let this happen to you!