Question

The lowest payment does not necessarily mean the best credit plan. If your car loan is a long period of time, you may end up owing more than the car is worth, which is called:_______
a. Negative equity.
b. Low monthly payments.
c. Loan preapproval.
d. Low-interest loan.
e. All of these are potential problems.

Answer 1

Answer:

a. Negative equity.

Explanation:

Negative equity occurs when the market value of an asset being obtained through the loan is less than the amount that is on the loan balance.

For example if a car is being obtained for a loan amount of $1,200, and the market value of the car is $1,000. This is a situation of negative equity.

Negative equity can occur as a result of excessive interest payment as is seen in long term mortgages. When a customer is paying small amount on mortgage over 30 years the value of the house will most likely be lower than the total loan amount that will be paid.

Answer 2

Answer: negative equity

Explanation: negative equity is defined as the potential indebtedness arising when the market value of a property, say car, house etc. falls below the outstanding amount of a mortgage secured on it. In simpler terms, it is the situation in which a property is worth less than its mortgage. In scenarios such as this, one would be in negative equity because he or she would owe the creditor (bank) more than they would get if the loan property is sold. There's more risk of negative equity with interest-only mortgages and it is because your monthly payments do not reduce the value of debt owed, but goes towards reducing the interest.