I Have Negative Equity in My Car, Can I Still Trade it In?

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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.


, - July 31, 2018

Owing money on your car loan doesn’t necessarily mean you have negative equity, although most car owners will be underwater on their auto loan at some point. But, just how the trade-in process goes depends on how much equity is – or isn’t – in your vehicle.

How to Trade in a Car With Negative Equity

Ideally, you want to have equity in your car when you go to trade it in. Equity means the vehicle is worth more than the loan balance, and can be calculated by subtracting your current loan amount from the car’s appraised value. If you end up with a negative number, it means you have negative equity. Having negative equity isn’t typically a problem to be concerned about – unless you want to trade in the vehicle.

If you’re set on trading in your car while it’s underwater, you have three ways to deal with negative equity:

  1. Roll over your negative equity – Not every lender offers this, but you may be able to roll over your negative equity into the new loan. The issue with this is that the negative equity won’t disappear – you’re still responsible for paying back any negative equity on top of the new loan. It might sound like a good temporary fix, but it results in a higher monthly payment and increased interest charges. If you're not sure you can handle the higher overall cost, you may want to reconsider rolling over the difference.
  2. Cover the cost out of pocket – If the negative equity amount isn’t substantial, the easiest way to get rid of it is to pay out of pocket. This way, you avoid having to roll over any negative equity and make the trade-in process easier.
  3. Wait it out – If your negative equity amount is too high right now, and you can hold off buying a new vehicle for a little longer, it would help to postpone buying a car. It’s never a good idea to jump the gun on large purchases like a vehicle. Make sure you’re 100 percent ready to go through the process before heading to a dealer.

Finding the Right Lender to Work With

At the end of the day, it’s important you do what’s right for you and your financial situation. It also doesn’t hurt to rate shop to get the best deal, and not just settle for the first offer you receive. But if you’re worried your bad credit will stop you from getting a car loan, know that we have the resources for you.

If you want to buy a vehicle and trade in your old one, but are struggling to find a dealer that can help, CarsDirect wants to take the lead. We’re connected to a nationwide network of dealerships that specialize in working with people in unique credit situations. We can connect you to one in your area if you simply complete our online request form.

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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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