When to Trade in a Car with Negative Equity

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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.


, - December 22, 2017

Being “upside down” on a loan is more common than many people think. At one point or another, most borrowers have negative equity in their car. Consumers can build equity over time, but what if there’s no time to wait and a buyer needs to trade in a car with negative equity?

Is There a Right Time to Trade in?

Negative equity means a borrower owes more on their loan than the property (a car or house, for example) is worth. For example, if someone has a loan balance of $13,000 on a car worth $10,000, they’d have $3,000 of negative equity.

There isn’t always a “right” time to trade in a vehicle. It depends on the borrower and their current situation. Some common reasons car buyers choose to trade in their vehicle while upside down include:

  • Needing a different sized car.
  • Costs to repair the current vehicle are high.
  • Poor fuel economy.

Things to be Aware of

Just because it’s possible to trade in a vehicle with negative equity doesn’t mean it’ll be the best choice. There are three important things to consider before trading a vehicle while upside down:

  • Rolling over – The negative equity won’t go away when a buyer takes out a new loan. Any negative equity from the original loan will carry over to the next unless the borrower pays the difference out of pocket.
  • Financing the negative equity – Borrowers who roll over negative equity increase their chances of being further upside down on the new loan. In this case, the borrower ends up financing both the selling price of the new car and the money owed on the old loan.
  • Limited options – Because lenders don’t like financing negative equity, available loan programs and vehicle choices can be limited based on the severity of negative equity involved.

Bottom Line

It’s possible to trade in a vehicle while upside down on a current loan. If you have negative equity and your credit isn’t perfect, the biggest issue you’ll face is getting approved for a new loan. This is where CarsDirect wants to help out.

With our extensive network of new and used car dealers, we can help you find the financing you need. The dealers in our network specialize in helping consumers in challenging credit situations. Our safe and secure auto loan request form can help you get started today.

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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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