Thinking Clearly About Underwater Car Loans

When people complain about the expenses and annoyances of homeownership, they can expect a derisive response from at least part of their audience. Complaining about homeownership, no matter how well the numbers back up your complaints, always comes across as sounding like a humblebrag. By complaining about the annoyances of your house, your mortgage, and your homeowners’ association, you are rubbing it in your audience’s face that you own your own house, whether you mean to brag or not, and some of your interlocutors will never be able to afford homeownership unless their financial situation changes in unexpected ways. 

Complaining about your car, however, is something everyone can relate to. Given the dearth of public transportation in California, driving is how most people get to work, only to have their cars eat up an uncomfortably large portion of their paycheck. Unfortunately, car ownership does not look like it will become more affordable anytime soon. In fact, car loans are the debt-encumbered assets that are most likely to be underwater, meaning that the owner has negative equity. For help coping with an underwater car loan, contact an Oakland lawsuits, collections, and creditor harassment lawyer.

Why Car Loans Sink More Quickly Than Other Kinds of Debt

If you finance the purchase of an asset, such as a house or car, it means that you own the asset, but you are using it to secure the loan you borrowed to buy it. Therefore, if you fall behind on the car payments, the bank can repossess your car. The more money you have paid off on your car loan, the more equity you have in your car. If the amount you owe on your loan is more than the resale value of your car, you have negative equity; this is what it means when people speak of a car loan being underwater.

Home mortgages usually do not get underwater unless you fall behind on payments or unless the interest rate spikes on an adjustable-rate mortgage. This is because home values usually do not depreciate. Cars, however, depreciate quickly; perhaps your high school economics teacher even warned you that a new car loses half its value the minute you drive it off of the dealership lot. You do not even have to incur any late fees to get a car loan underwater. With car prices and interest rates as high as they are today, negative equity is almost inevitable unless you make your car loan the target of a debt repayment avalanche.

How to Deal With an Underwater Car Loan

As of the fall of 2024, nearly a quarter of cars that people are trading in have negative equity, but you can avoid this problem simply by not trading in your car until you have paid off more of the loan. In other words, negative equity is a bigger problem for people who want a new car every few years than it is for people who accept that car depreciation is a fact of life and who drive their cars for as long as they will last.

Contact the Law Office of Melanie Tavare About Protecting Yourself From Underwater Car Loans

A debt relief lawyer can help you if your car loan is underwater. Contact the Law Office of Melanie Tavare in Oakland, California or call (510)255-4646 for a case evaluation.