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Negative equityโฆ or when you owe more on your loan than your car is worth
New or used vehicles can lose value when they are driven off the lot. That makes it easy to end up with Negative Equity on your car loan. Negative equity can happen for many reasons:
A solution for not getting into a negative equity trap, is being smart about getting a car loan. Here are some strategies:
Understand your creditworthiness
The terms and interest rates available to you will be based on the vehicle and your credit score. Know your credit score! Check with Equifax or TransUnion Canada.
Compare lenders
Ask your bank or credit union about terms and rates so you can compare the rates at the dealership.
Verify credit application accuracy
Shop for a vehicle, not a monthly payment!
Know the actual price of the vehicle, any fees, your financing costs, and any balloon payments at the end of the term
Extended-term loans and long-term financing โ are they right for you?
Extended-term loans (typically 72 โ 96 months) can lead to negative equity and a cycle of debt. Ask for the loan progress chart. Before agreeing to an extended-term loan consider:
To learn more about negative equity click here.
Source: OMVIC โ Ontarioโs Vehicle Sales Regulator
If you have any questions, please contact VSA Consumer Services.
NOTE: This is to provide general information and is not intended to be legal advice.
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