Car Equity Basics

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Megan Foukes is a recent graduate from Indiana University who graduated with a bachelor’s in journalism. Megan works as a content writer for Auto Credit Express and contributes to several automotive and finance blogs.


, - April 3, 2018

As a car buyer, it’s important to understand what equity is in a vehicle and how it can change the car buying experience. Luckily, understanding equity is pretty simple.

Equity vs. Negative Equity

A vehicle can have equity or negative equity. Consumers can keep track of the equity in their vehicle by knowing the value of their car and the payoff amount of their loan. Calculating this is simple:

  • Equity is the positive difference between the vehicle’s value and the amount owed on the loan. So, if a buyer’s car is valued at $7,000 and the balance on their auto loan is $2,500, there’s $4,500 of equity in the vehicle.
  • Negative equity is when a buyer owes more money on their loan than the car is worth. This is also called being “upside down” or “underwater.” For example, if a borrower has a vehicle valued at $2,500 but the payoff amount of their loan is $5,000, there’s $2,500 of negative equity in the car.

Once a buyer calculates how much equity is in their car, they can determine how to use it. If the buyer is in the process of purchasing a vehicle, they can use that equity toward all or part of the down payment. They also could take the equity in the form of cash.

If a buyer is upside down on their loan when they want to trade in, they’ll typically have to pay the difference between the actual cash value of the car and their loan balance out of pocket. If that’s not possible, they may be able to roll the difference into their next loan. This isn’t recommended though, because rolling over negative equity will cause a buyer to put themselves further into debt.

Bottom Line

Having equity in a vehicle can be great when it’s time for a new car. But if a buyer is facing negative equity, buying a new car and potentially rolling over the difference could put them in a financial bind.

If you’re struggling with where to begin in the car buying process, or need a special finance dealer that can work with your particular credit needs, let CarsDirect be your first step. We work with an extensive network of dealers that have the lending resources available to help consumers with many types of credit challenges. Just fill out our simple online auto loan request form to get started.

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Megan Foukes is a recent graduate from Indiana University who graduated with a bachelor’s in journalism. Megan works as a content writer for Auto Credit Express and contributes to several automotive and finance blogs.


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