Don't Get Upside Down On Your Car

Car dealers like to sell cars based on what kind of payments you can afford. With today's long term car loans it's pretty easy to make a long term mistake because of short term thinking.

One thing to consider is the number of miles you'll be putting on the car. This is one place where people often hurt themselves. Let's say, for example, that you work close to home and you put 11,000 miles a year on your car. Your car is old and breaks down a lot. You're tired of expensive trips to the shop and you've used almost all your money on this car.

You have very little to put down on a new car. But the dealer offers you an irresistible deal on a new car. In fact, you find that you can buy a lot more car than you thought. Very little money down is required, and you can "afford" the car because the payments are low. They're stretched out to 60 months.

So you make the purchase and drive the car off the lot feeling very good about your new ride. You're now living large. With a 50,000 mile warranty it will give you years of trouble-free service.

Fast forward two months and you lose your job. You're fortunate to find another one. But it's farther from home and you now put on 20,000 miles in a year. At 50,000 miles the warranty is done, but you're only halfway through the loan. But the loan is structured in such a way that you've only paid off about 25% of the loan. The car stars breaking down at about 60,000 miles and you consider buying another one.

You go to the dealer to find out what you get. But you find that you are "upside-down" on your current car. That means that you owe more on the car than what it's worth. You are now in trouble because of a decision that seemed like a good one a couple years ago.

The better way to go is to buy less car than you can afford. The objective with cars is to get in front of the game instead of getting behind the proverbial 8 ball. Instead of being lured into a fancy car with a long term loan you should look at a much shorter term loan and consider a used car with low miles. In the long run you'll build more equity. With discipline and long term planning you can one day pay cash for your cars and be relieved of financial pressure.

Don't fall for the tricks dealers play on unsuspecting buyers. Get smart and plan well. Your wallet will thank you for it in a few short years.

Otto Wortman is involved in the German auto enthusiast community. Otto buys many of his BMW parts from AutoWerks of America.

Source: http://ezinearticles.com/6331146

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