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Auto Loan Terms – Upside Down & Repossession

In the lending industry there are few terms which no one ever wishes to know. But, like death and disease, it is best to know the consequences of bad auto loans was they instill more discipline and awareness when applying for loans for the first time or any time. These terms are repossession and going upside down.

Upside Down: most people are aware regarding repossession but very few people are aware regarding being in an upside down situation. When a loan is approved, a certain rate of interest is charged on the loan by the lender. If the interest is high, then chances are that missing few payments can land the borrower in upside down situation. In these circumstances, the borrower owes more money on the loan than what his/her car is worth. Usually, car prices go down after a few years or in couple of years. However, if after these two years, the cost of the loan is higher than the cost of the car, then it is termed as upside down. This usually occurs due to lack of awareness or credit score and also high interest rate.

Repossession: this term is quite dreaded and known in the lending industry. This means that the car that the borrower drives belongs to the lender if the applicant defaults on a payment. Usually, in low term auto loans, a single default is enough to trigger repossession but some lenders include a number of defaults for long term loans. This means that the borrower loses whatever money he had paid back to the lender and also loses the car that he/she is driving. There are some clauses which can be included to avoid the situation. For example, few lenders include the clause where repossession cannot occur if more than half of the money has been paid by the borrower.

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