Attempting to purchase a car with negative equity and limited credit can severely affect your financing options. When the time comes for you and your partner to purchase another vehicle, it’s important to sit down and discuss the impact it will have on your finances. With your equity and credit making things more difficult to secure financing, you may have to resort to other options when it comes to finding the right vehicle for your needs.
Living With Negative Equity and Limited Credit
Negative equity occurs when your current car has lost its value to the point where it’s worth less than what you owe on a loan. What this means for you is that its trade-in value is basically worthless. You can try to trade in your car for a new vehicle, but you would still owe money for your previous vehicle. In essence, it would do nothing to cut down on the new car’s price. By the same token, when car dealerships or banks look to secure financing for you, your limited or poor credit history will make it difficult to secure a loan. With the combination of negative equity and limited credit, you may have to turn elsewhere to make sure you get the right financing for your monetary needs.
Putting Money Down
Depending on the type of car you are buying, you may increase your chance of receiving a line of credit if you put money down. While you should never overextend yourself, putting down a percentage of the vehicle’s price should allow you to purchase it for an affordable monthly rate.
Finding a Co-Signer
If you are in desperate need for a new vehicle, asking a friend or family member to co-sign for you could get you a chance at financing. A co-signer is someone with good credit who will sign with you on the agreement to purchase your vehicle. The advantage for this is that not only will you receive a better monthly rate for your car, you’ll also be able to improve your credit history by making consistent payments. However, if you are late or if you fall behind on you payments, not only will your credit history be affected, your co-signer’s will as well And your co-signer will be on the hook for the loan if you default.
Pay Off Your Negative Equity
For those who have the time to wait before purchasing a new car, paying off your current vehicle and expanding your credit will help you in the future. While it may take a while to pay back, you will eliminate your negative equity and have a credit history that will be appealing to any future lenders.
Travis Ames has written for numerous publications since 2007 and has been writing instructional articles online since 2010. His areas of expertise are wide and include travel, politics, arts and entertainment, technology and finance. He currently lives in Portland, Oregon where he will begin teaching in the fall of 2011.