Vehicle Depreciation vs Loan Repayment, Avoiding Negative Equity

In India, buying a car is more like an achievement. However, it has become easier to have a vehicle loan; there are some critical financial issues you have to face. Vehicle depreciation vs loan repayment is a major aspect that we need to check and navigate accordingly.

In this blog, we will talk about the problems related to depreciation and loan repayment, finding the best vehicle loan solutions, aspects that we need to consider, getting expert help, and more. If you know a  DSA partner , you can talk to him and consult about choosing the best vehicle loan in India. &nbsp

Learn about Vehicle Depreciation

For any vehicle, the net value of it depreciates with time. According to experts, the depreciation rate can vary from 15 to 25% a year. At this rate, after five years, the value of your vehicle will certainly lose 40 to 60% of its original value. If you have bought an electric vehicle or a luxury one, it will depreciate at a much faster rate due to the rapid growth of modern technology.

How to Manage Loan Repayment?

When you are repaying the loan amount, it includes both interest and principal. Choosing a longer loan term will slow the equity buildup. It is not good for managing our equity risk. Selling your car before the loan payment will help you save some money.

Understand the Negative Equity Trap

Have you heard of the negative equity trap? Suppose you have bought a new car recently. After a certain time, the price of your car will be low, and you still have to pay the amount you owe to the bank. These two values can mismatch, and in most cases, you will face some financial loss.

Choosing the Best Solutions

Now that we are familiar with the issues, it is time to learn about some of the solutions you can have to handle negative equity issues. The following tips will help you in many ways-

1. Depreciation rate is not the same for every car. Some cars can maintain their true value over the years. That’s why we must do some research before buying a car. When you are worried about the depreciation value, you shouldn’t buy luxury brands. Both luxury cars and EVs have a lower second-hand value than most cars.
2. When you are buying a car using a vehicle loan, you must pay 20% or more as a down payment. Making a large down payment will surely reduce your EMI and help you catch the early depreciation. This is the only way to stay ahead of the negative equity.
3. Although people find it comfortable to choose a more extended loan payment, this is not good for the issues we have just discussed. Try to go for shorter loan terms instead. Don’t ever try to choose beyond 72 months, as it will increase the negative equity risk.
4. For vehicles, choosing insurance is mandatory. Get a Gap insurance for help.
5. Check different loan options and the interests associated with these loans. Choosing a loan with a lower interest rate will be helpful for managing your loans faster. Contact with loan agent that can help you choose the best loans in the market and have associated benefits.

Aspects We Need to Consider While Choosing a Loan

While getting a vehicle loan, you must consider a few important aspects-

1. Both interest rates and depreciation rates are important. Monitor these two factors before choosing the best one for yourself.
2. Loans are available for both new cars and old cars. If you have an old car in good condition, you can easily choose that car.
3. Both leasing and buying are available. When you choose to lease, it is possible to completely neglect the negative equity. Buying is a long-term thing.
4. When you are buying a new car, make sure to check the resale values of them. If the resale value is moderate, you can choose that car.

These aspects are helpful in choosing the best car and the loan required for it.

Get Help from Experts

1. If you are not confident, you must look for a financial advisor for help.
2. Learn about possible loan options and get suggestions from the loan agent before making the call.

These aspects will surely guide you in the right way to choose a car loan that is best for your financials and avoids negative equity issues.