As metropolitan Atlanta continues to grow, then the number of miles that we drive and put on our vehicles increases. On Average people in the Atlanta metropolitan area put roughly 15,000 to 30,000 miles per year on their vehicles. As such, the more miles your vehicle accumulates during the course of your ownership, then that will have a direct impact on your vehicle’s value. If you have a vehicle with a considerable amount of miles on it and decide to trade that vehicle in exchange for a newer model before the loan on the existing car is paid off, then you can find yourself in a negative equity position.
A Negative Equity position simply means that the trade-in value of your car (what your car is worth today) is less than what you owe on the car (your loan payoff balance). For example, let’s say that you currently own a 2005 GMC Truck that has 90,000 miles and the trade-in value quoted to you is $6,000; however, the loan payoff is $7,500, which results in the negative equity ($1,500).
Essentially, there are three ways to overcome negative equity on your trade-in. The simplest alternative is to drive your car until it is completely paid off. In other words drive your car until “the wheels fall off.” The second alternative would be to find a car to purchase that has enough equity spread to cover your existing negative equity. The third alternative is to put cash down to cover the negative equity.
Equity spread as mentioned above is the difference between the purchase price of the new vehicle being acquired and its related bank retail loan value (or the NADA Retail Loan Value). For example, let’s say that you are purchasing 2006 Infinity M35X with 56,000 miles on it for $25,000 and the Bank retail Loan Value is $28,225. As such, the equity spread would be $3,225. The bank retail loan value is the maximum amount of money the Credit Union will loan on any vehicle.
Equity spread will give you the leverage needed to roll any negative equity into the new vehicle being financed. In the two examples mentioned above you would be able to roll the negative equity from the 2005 GMC Truck ($1,500) into the financing of the 2006 Infinity M35X. For further assistance with finding vehicles that have equity spread benefits contact MAC today.
@
