Credit & debt · Module 7 of 8
What the loan actually bought
When a car or a degree loses value faster than the loan shrinks, and how to avoid owing more than something is worth.
Key terms in What the loan actually bought
- Negative equity
Negative equity exists when a person owes more on a loan than the financed item is currently worth. It is sometimes described as being upside down. The situation is common with vehicles, which lose value quickly, and it matters when the item is sold or traded in, because the remaining loan balance must still be paid.
Source: Consumer Financial Protection Bureau, Auto loan answers
- Loan-to-value ratio
A loan-to-value ratio, or LTV, compares the amount of a loan with the value of the asset that secures it. For a car loan it is the loan amount divided by the vehicle’s actual cash value, and for a mortgage it compares the loan with the appraised value of the property. A larger down payment lowers the ratio.
Source: Consumer Financial Protection Bureau, Auto loan answers
- Guaranteed asset protection (GAP) insurance
Guaranteed asset protection, or GAP, is an optional product meant to cover the difference between what is owed on an auto loan and what an insurer pays after a vehicle is stolen or totaled. Standard auto insurance pays only up to the vehicle's value. It is sold by dealers, lenders, and insurers, and when financed its cost is added to the loan amount.
Source: Consumer Financial Protection Bureau, What is Guaranteed Asset Protection (GAP) insurance?
Every term on Lever is in the money glossary.
About this module
What the loan actually bought is part of Credit & debt, one of 15 subjects in Lever. It’s a short run of 7 lessons, about 18 minutes in all, so you can finish it in one sitting.
Every lesson takes one idea at a time. You read it with the math worked out step by step, answer a question that puts it to use, then see why the right answer is right and why the others aren’t.
It’s for anyone who was never taught this, and you don’t need to know anything first. Every lesson is free. Lever works out what you already know, so you can start here or let your path bring you to it.
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1
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2
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3
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4
Which debts are worth it
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5
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6
Changing the deal you already signed
Your debt isn’t set in stone. Negotiating, refinancing and consolidating, and what each one costs.
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8
Paying in pieces
Buy now, pay later and interest-free instalments: when they’re really free, and when they get expensive fast.
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Try this module
It’s part of Credit & debt. Lever will bring it to you when you’re ready, or you can go straight there.