I thought I would talk about Negative Equity with an auto loan to provide a better understanding. Negative equity is when the value of the asset ( the vehicle) is less than the outstanding balance on the loan used to purchase the asset. (auto loan). Negative Equity is likely to occur when you have one of the following higher Interest rate, longer term, lower payments, no down payment.
How to avoid a Negative Equity
If you qualify for a bad credit auto loan, It is important to keep in mind that the higher the interest rate the more likely you will fall in a negative equity situation. Finding the lowest rate allows you to pay off the principle sooner. However, the higher interest rate is sometimes required in order to re-establish your credit. In that case, it would be ideal to have some money down and choose to pay a higher monthly payments and shorter term to pay the auto loan off quicker.
Negative Equity with an Auto Loan
Paying off the loan as quickly as possible by doubling up on your payments would avoid negative equity, The newer the vehicle the better your chances of avoiding the negative equity. And ultimately, keeping the vehicle until the loan is paid.