The Government of Saskatchewan is warning consumers about the risks associated with negative equity after a report released by the Financial Consumer Agency of Canada showed the trend was growing.
Negative equity is when a buyer owes more than a car is worth. The report suggest that new cars are bought every three to four years but the average auto loan now exceeds six years.
One risk for the consumer is if a car is destroyed. Insurance companies will typically pay for what the car was worth, not what was owed leaving the person to pay back the debt.
Some tips offered by the Saskatchewan government include paying off existing vehicle loans and avoid rolling negative equity forward into new purchases. They also advise not to focus on a low monthly payment but at the total cost of the loan. Another tip is have a budget and to stick to it. Lastly, consider a shorter term loan as longer term loans are generally more expensive.