Is There Equity in Your Vehicle?

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Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


, - March 7, 2018

If someone owns a vehicle outright, the appraised value of the car is the amount of equity it has. But if the vehicle is financed, equity is the difference between what’s owed on the loan and the value of the vehicle.

Equity vs. Negative Equity

Let’s look at two situations that explain the difference between equity and negative equity:

A borrower is trading in a vehicle with a $10,000 value, but they only owe the lender $8,000. The $2,000 difference – equity – is cash gained from the sale of the vehicle. At this point, they can take that cash and walk away, or they can put the money down toward a new car.

Now let’s look at the opposite situation. A borrower is trading in a car valued at $8,000 but they still owe the lender $10,000. That $2,000 difference is now negative equity – the borrower is “underwater.” It can be harder to trade in a vehicle in this situation, but it’s not impossible. In this case, the borrower can either pay the difference out of pocket or roll the total into a new loan.

Why is Equity Important?

Avoiding negative equity is important, because if a borrower owes more on the loan than the vehicle is worth, they’ll likely have to come up with money to pay off the difference, or wait to get another vehicle. If these options don’t seem possible, borrowers can roll the amount owed into another loan.

Rolling over negative equity can put a big financial strain on the borrower. Rolling the extra amount into a new loan will increase the principal, and result in higher interest charges over the term of the loan.

Determining Equity

If a borrower is thinking about trading in a vehicle, it’s a good idea to know what kind of and how much equity they have. Determining if a vehicle has equity is a fairly simple process. Borrowers can get a good estimate of vehicle value by visiting sites such as Kelley Blue Book or NADA.

Keep in mind, the numbers these types of websites provide are only approximate. Vehicle condition, mileage, and the type of equipment also play a role in determining the trade-in value. Once a borrower knows the approximate value of their vehicle, they’ll need to request the payoff amount from their lender. Subtracting that from the vehicle value will determine its equity.

Bottom Line

Finding out if you have equity in a vehicle is vital to the trade-in process. If you find that you have negative equity, it’s a good idea to come prepared to pay off the difference at the time of trade in. If you’re ready to trade in your vehicle, but don’t know where to turn for your next loan due to credit issues, we want to help.

At CarsDirect, we’ll help you get the ball rolling on finding the right dealer for your next vehicle. Simply fill out our online auto loan request form to get the process started, and we’ll comb through our extensive dealership network to find a local dealer that has the lending resources you need. Don’t wait another day, get started now!

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Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


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