How To Trade In A Car With Negative Equity
How To Trade In A Car With Negative Equity
Trading in your vehicle should feel like a fresh start, but what if you're upside down on your loan? You're dealing with negative equity if you owe more than your car is worth. It can feel like a financial trap, but it doesn't have to be. At Aschenbach Automotive Group, we've helped countless drivers navigate negative equity trade-ins. We're here to help walk you through the process so that you can make a Smart Financial move for your situation. In this article, we'll cover negative equity trade-ins, calculating your vehicle’s equity, and the pros and cons of trading in when you still have negative equity without putting yourself in a worse position. Visit us at any of our locations across Pennsylvania, Maryland, and Virginia today!
What Is Negative Equity?
Negative equity occurs when your car’s loan balance is higher than the vehicle’s current market value. For example, if you owe $22,000 on your auto loan, but your car is only worth $17,000, you have $5,000 in negative equity. A new car can lose 20% or more of its value within the first year, significantly increasing the risk of negative equity. This happens more often than people realize, often resulting from rolling previous loan balances into a new loan, financing with little to no down payment, deep vehicle depreciation, especially in the first few years, and high-interest loans.
How To Know If You Have Negative Equity
To check whether you're upside down on your loan before pursuing negative equity trade-in options, you should first start by checking your loan payoff amount. This is not the same as your monthly payment, as it reflects the total amount needed to pay off the rest of your loan, which can be requested directly from your lender. Next, you'll find your vehicle's current value using trusted sources like Kelley Blue Book, Edmunds, or a trade-in appraisal from an Aschenbach Automotive Group dealership.
Finally, you'll subtract the vehicle value from your payoff amount. If the result is negative, that's how much negative equity you have in relation to your negative equity trade-in. If the result is zero or positive, congrats, as this means that you have equity in your car.
Can You Trade In A Car With Negative Equity?
Yes, a negative equity trade-in is possible, but relatively common. Understanding how your remaining loan balance will affect your new financing or cash transaction is key. When you do a negative equity trade-in, the dealer pays off your current loan, but the remaining balance is rolled into your new loan. In this case, your next vehicle loan starts higher than the car's purchase price. For example, if you owe $20,000 on your current car, but it's worth $16,000, and you want to buy a car that costs $25,000, you'll end up financing a total of $29,000.
Best Way To Trade In A Car With Negative Equity
The best way to approach a negative equity trade-in is by minimizing its long-term impact. Borrowers often face challenges when dealing with negative equity, but strategies like making extra payments or delaying a trade-in can help manage the situation.
Make Up The Difference In Cash
Pay the negative equity bonds up front. It may feel painful, but it avoids compounding your financial strain over a longer term by lowering your new loan amount, reducing total interest paid over time, and building equity in your new vehicle faster.
Choose A Less Expensive Car
Opting for a lower-priced vehicle means a smaller overall loan, making it easier to absorb the rolled-over balance for your negative equity trade-in. Choosing a less expensive car can often be the best option financially, as it reduces the overall loan amount and helps manage debt more effectively. This is especially effective if switching to a fuel-efficient or lower mileage vehicle to save on long-term costs.
Lease Instead of Finance
Leasing can sometimes be a strategic move when carrying negative equity. When leasing, the amount financed can include existing debts from your previous vehicle, which can complicate the financial aspects of acquiring a new car. In some cases, dealers can fold the balance into a lease, helping you move into a new car with a lower monthly payment, though you’ll want to read the lease terms carefully to avoid long-term cost increases.
Delay Your Trade-In If You Can
If you're not in a rush, holding on to your vehicle a little bit longer while making extra payments toward the principal can help reduce your negative equity and even flip your loan into positive territory.
How Much Equity Can I Roll Over?
Every lender has different thresholds for how much negative equity they’re willing to roll into a new loan. This typically depends on your credit score, the price of the new vehicle, and the loan-to-value ratio the lender allows. Be sure to check your loan terms for any prepayment penalty that might apply if you decide to pay off your loan early. At Aschenbach Automotive Group, our finance teams will walk you through these limits and determine how much negative equity you can roll over based on your credit and vehicle choice.
Trade In Today at Aschenbach Automotive Group
Trading in a car with negative equity isn't ideal, but it's not a dead end. Whether you're looking for a more reliable ride, downsizing, or just ready for something new, you have options. The key to your negative equity trade-in is understanding your numbers, being realistic about your next purchase, and working with a dealership that puts your best interest first. At Aschenbach Automotive Group, we're here to help you turn the page with clarity and confidence. Our teams are ready to help get you answers and get moving. Ready to start your negative equity trade-in? Stop by one of our dealerships for a free appraisal and let's talk about your options. Visit us today in Pennsylvania, Maryland, or Virginia!