If you owe more on your trade-in than it's worth, the difference is called negative equity. A car with a value of $4,000 and a loan balance of $6,000 would have $2,000 in negative equity.
Your lender may allow you to roll negative equity into the loan for your new car. So, if your old car has negative equity of $2,000 and you're borrowing $20,000 to buy your new car, the total value of your new loan would be $22,000.
Is this ever a good idea, especially if you're getting a bad credit auto loan with a higher interest rate? The answer is maybe. It can be a smart financial decision, for example, when your trade-in starts needing expensive repairs or maintenance.
Remember, though, that the more negative equity you roll into a new loan, the longer you'll be upside-down—or owing more than your car is worth. And you could find yourself in an expensive cycle if you keep buying cars this way.