How to trade in a car with negative equity

Car traded in and car purchased


When you owe more than your vehicle is worth but still intend to trade in for your next purchase – and plenty of people do – then planning your steps will help you get the most out of the deal.*


Rolling over your negative equity

In this situation, it’s common for negative equity to be rolled into the loan for your new vehicle. That means you’ll effectively be paying off your previous car along with your new ride in a single, larger loan on which you’ll pay interest. Such a loan can increase your financing costs and make it harder to reach positive equity, so give this some serious thought. However, if you need or still want to trade in your car, there are a number of ways to mitigate these effects and keep your expenses down.

Check how much negative equity you have

First of all, you’ll want to know just how much negative equity you’ve got. Log into your auto loan account or contact your lender to get the payoff amount on your current note. Then look up the trade-in value of your car at sources like NADA Guides, Edmunds and Kelley Blue Book and compare it to the payoff to see the difference. If your car is worth $10,000 yet you still owe $15,000, that’s $5,000 in negative equity that could be rolled over into your new financing.

Consider a cheaper car

One way to reduce the size and cost of the potential new loan is to simply buy a less expensive car. You could also go for a used model rather than a new one to offset the effects of depreciation, which could exacerbate the “upside down” problem you encountered previously. New vehicles depreciate by 20 percent in their first year and by about 50 percent after year three, so even buying a nearly new car could help you reach positive equity more quickly this time around.

Look for suitable loan terms

When negative equity bumps up your loan amount, it’s tempting to opt for a loan that’s on the longer side in order to keep monthly payments down. Be aware that this route will typically take you longer to build up equity in the vehicle and, depending on interest rate, the accumulated finance charges mean you could pay more for your car over the life of the financing. A shorter loan with the same interest rate will increase the monthly payment but speed up the rate at which you can gain equity and pay off the car completely.

Estimate your financing

Auto loan calculators will enable you to see what the best loan for your situation may look like.

Use the monthly payment calculator to enter a total loan amount, which could include the negative equity you’ll be rolling over; loan duration and APR to gauge what might be affordable. Adjust the term and APR to see how the payment changes.

Get preapproved before visiting the dealership

Apply for financing before going to the dealership to save time and help yourself to stay within budget when shopping for a vehicle. Online lender RoadLoans makes the process easy with a short application and instant decisions. Approved applicants can visit a preferred dealership nearby, choose their car and close the deal. The dealership will then work with us to finalize the paperwork.


Alternatives to trading in a vehicle with negative equity

Trading in a car with negative equity may be commonplace but there are other options which may save you money. Think about these as well.

Pay off the negative equity

If your finances allow, an easy option is to simply pay off the negative equity – whether as a lump sum or by adding to your monthly payments to pay down your loan quicker. Most auto loans are simple interest loans where such extra payments go only toward the principal and not interest.


Taking out a refinanced loan with new terms, such as a shorter duration and lower APR, is another way to accelerate the journey to positive equity.

Keep the car and wait

If it’s serving you well, you could just hang on to your car, keep making your regular payments and wait until it’s all paid back before purchasing another.


Your next steps

Now you have a better grasp of how to tackle your negative equity you can make a decision and go ahead with confidence. If you’re planning to trade in your vehicle or refinance your current loan, apply for financing with RoadLoans and get a quick decision.†


 * These statements are merely informational suggestions only and should not be construed as legal, accounting or professional advice, nor are they intended as a substitute for legal or professional guidance. RoadLoans is not a credit counseling service and makes no representations about the responsible use of consumer credit.

† RoadLoans does not accept auto refinance applications from existing Santander Consumer USA and Chrysler Capital customers.


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