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It's expensive purchasing a vehicle and it only gets more so as time goes on. Over time, the price of new vehicles has increased faster than the rate of inflation. This isn't entirely due to greed on the part of automakers; vehicles are also more complicated and useful than they used to be. Sure, they were cheaper in the 1960's, but they didn't include air conditioning, air bags and video systems. Convenience and safety comes at a price. If you have a business you should consider guaranteed car leasing as it could be more tax efficient.

With the increase in price comes an increase in the length of time individuals are taking to pay off their vehicles. Few individuals pay cash; most individuals take out loans and pay over time. The average vehicle loan, which used to be repaid over a period of three years, now averages about six years in duration. That's a long time to pay for a vehicle, especially if you have no plans to own it for that long.

Taking six years to pay for a vehicle has its advantages, as the payments are lower than they would be over a shorter loan term. Such a long loan does have a significant disadvantage, though - you can find yourself in a negative equity, or "upside down", situation. This can be a serious problem - if you should total the vehicle in an accident, your insurance company will only pay you the value of the vehicle, and not the amount you still owe.

A purchaseer is described as being upside down when he or she owes more on a vehicle loan than the vehicle is worth. It's easy to find yourself in an upside situation, and it can occur under any of the following circumstances:

Insufficient down payment - vehicles depreciate as much as 25% the minute you drive them off of the lot. If you haven't provided enough of a down payment to cover that depreciation, you may find yourself upside down immediately.

Trading in too often - purchaseers like to trade vehicles in and roll their outstanding balance into a new loan. These unpaid debts can contribute to negative equity.

Too long a loan - Five and six year loans often lead to negative equity. You can often avoid it by keeping the length of loans to three years or less.

In order to avoid a potential problem in the event of an accident, you should contact your insurance provider to make sure that you have "gap insurance." Gap insurance will make sure that you are protected should you have an accident while in an upside down situation. Without gap insurance, you may find yourself still making vehicle payments even though you no longer have a vehicle. That is the last thing any vehicle owner wants.