The Dilemma of Negative Equity and the Lemon Law
If you’re in the habit of transferring debt every time you buy a new car, you can end up with a very high debt load. This situation is called ‘negative equity’.
If you are in this position, you will often find yourself in a difficult situation if you discover that your new car is a lemon. For example, you can request a buyback, but the manufacturer will refuse to include the negative equity payment from the old vehicle you traded in to get the new vehicle that is a lemon. Some states’ lemon law says that the manufacturer must return the negative equity when you buy a lemon back, however there are states that do not address this situation, so the manufacturers say they are not responsible and will not include it in their repurchase. .
There are several ways to avoid or get out of this position. The first thing to do is find out if you really are in this financial situation. Some car dealers will try to increase their profits by undervaluing the car in order to pay less for the trade-in. It’s important to know how much your vehicle is really worth before making a trade-in. The Kelly Blue Book is a good source to find out how much your vehicle is worth. Next, you need to find out how much debt you have left on your current car loan to know if you are in a lower equity position. This will allow you to have a better price negotiation advantage.
Most experts recommend that you pay off your existing vehicle before buying a new car, especially if you’re in a state that hasn’t implemented rules on manufacturers, including negative equity when they buy back a lemon. If you don’t want to wait to pay off your current car, you can use incentives or cash rebates from any manufacturer to pay off the negative principal on your new loan, or pay off your current car loan. Other tips to avoid negative equity is to buy a cheap new car and get short-term financing, shop around for a deal you can manage. The negative equity dilemma can be difficult; however, with a little planning, you will ensure that you can get out of the situation much easier and faster, and even avoid getting into the situation in the first place.