The loan is denied because the car you are considering is priced higher than it is worth.
Well here‚Äôs a familiar scenario these days, you have found a pre-owned car that you really like and would work great for you and your family.¬† After the test drive and a once over from your local automotive shop, you decide to purchase it.¬† A quick trip to the bank for a loan and then it happens. The loan is denied because the car you are considering is priced higher than it is worth.¬† This is happening more and more and not only on the buyer‚Äôs side, its happening on the seller’s side as well.¬† Every day I drive out SR200/A1A to my office I see dealer lots full with these opportunities gone south.
So what has happened to make this time tested practice of selling and buying second hand vehicles and pleasure crafts so difficult?
To begin with,¬†our current economic state has resulted in a flooding of the pre-owned auto¬†market with an unprecedented amount of inventory.¬† This coupled with a steady increase of bank repossessions has caused the market¬†to swell¬†like we have never seen before.¬† The economic law of supply and demand goes into full force, forcing the values of cars and boats to rapidly depreciate, just as is happening in the housing market, the boat market, the bike market, the RV market and every other market that qualifies for capital expenditure.
To make a purchase even more difficult, the banks have made the art of getting a loan an almost impossible undertaking, even for the customers with good credit.¬†Most people are now forced to bring cash to the table if they are looking to close the deal.
With all this being said, what can you do if you‚Äôre planning to buy or sell a pre-owned vehicle?¬† Start by doing your home work. The internet is a great place for current information on similar items you are buying or selling.¬†Use eBay, Amazon, Craigslist and others to find what comparable prices vehicles are offered at and are actually sold for.
Another good source is Nada (http://www.nada.com/). Nada is a national publication that values registered items from cars to boats and RV‚Äôs and has historically set the price for selling or buying.¬† Nada in the past has also dictated the loan values of these items and set the guide lines for bank¬†loans.¬† Two figures are given by the Nada, average retail and clean trade in.¬† Just as their terminology implies, the average retail is what you would expect to pay for a particular registered item, while the average trade in is the figure expected when trading a vehicle.
Although the game has changed drastically,¬†you can still utilize the Nada guide, but now you have to do a little math when calculating a fair price.¬† Choose your vehicle with all the options just as it‚Äôs equipped. When you reach the average retail and clean trade in screen disregard the average retail as it would take a miracle to get anywhere near that figure.¬† Now take the clean trade-in number and multiply it by 0.75. The resulting figure is the amount that items are regularly being sold at. Banks use this calculation to base loan values on.
Buying and selling still goes on in a depressed economy if you know how to gauge the real market price of the moment.