within the automotive industry, we often come across a predicament we call «Negative Equity». We thought it was crucial to create articles they are carrying negative equity, especially during difficult economic times on it today because a lot of customers may not be aware that banks tend to take a hard look at customers applying for car loans when.
To simply help explain just what negative equity is, let us have a look at this situation: a customer makes a dealership and chooses to purchase their very very first brand new vehicle! They want financing so they really apply to get authorized! To help keep re re payments low, they use the longest term at 96 months. Happy buyer!
Fast ahead to 2 yrs later on: the customer views a car that is new have to have! More great features, better efficiency, you identify it! Therefore the buyer heads back once again to a dealership with an idea to trade within their two-year vehicle that is old then fund brand brand new.
Now, let’s hypothetically say the two-year vehicle that is old exchanged in is just worth a worth of $20,000; nevertheless, the client nevertheless owes $25,000 to your bank because of their current loan. The client must then make an application for a loan that covers the whole funding of a vehicle that is new the $5,000 still owing on the past car. This $5,000 then efficiently becomes «Negative Equity».
A buyer gets to their third vehicle in this process, the bank will be financing a significant amount of money without collateral as you can see, by the time. For instance, a customer desires to purchase a car worth $30,000 whilst still being owes $20,000 negative equity, so they really need to submit an application for a $50,000 loan.Подробнее