Can You Trade In A Car With Negative Equity?
For many drivers, the idea of upgrading their vehicle is complicated by one frustrating reality: they owe more on their car than it’s worth. This is known as negative equity, and it can make any trade-in feel daunting. At Aschenbach Ford, we believe that trading in your current vehicle should feel like a fresh start and not a financial roadblock. In this article, we’ll walk you through everything you need to know about a negative equity trade-in, from understanding what it is to determining your best options for getting into your next vehicle. Visit us today in Wytheville, VA!
What Is Negative Equity?
Negative equity is also known as being “upside down” or “under water” on a loan and occurs when your car’s current market value is less than the remaining balance on your auto loan. New cars can lose over 20% of their value within the first year, contributing to negative equity. For example, if you owe $18,000 on your loan, but your car is only worth $15,000, you have $3,000 in negative equity. Going “upside down” can happen for a variety of reasons: depreciation happens quickly with new cars, long loan terms can stretch out payments, and high interest rates can slow the pace of paying down principal. Regardless of the cause, trading a car with negative equity means you’re trying to get out of a loan situation where you owe more than the car is worth.
How to Trade In A Car With Negative Equity
Before taking any steps to complete a negative equity trade-in, it’s important to know exactly where you stand. At Aschenbach Ford, we recommend starting with an accurate trade-in appraisal of your current vehicle. Our experienced team can give you a market-based trade-in estimate that reflects your car’s actual value based on its condition, mileage, and local demand.
At the same time, you’ll want to check the current payoff amount from your lender. This number includes your remaining loan balance plus any fees required to pay off the loan early. Determining the estimated value of your car is crucial for understanding your financial situation. Subtracting your vehicle’s appraised value from the payoff amount tells you how much negative equity you’re carrying. From here, we can determine how to approach a negative equity trade in the most cost-effective way.
Options for Trading In a Car With Negative Equity
Borrowers facing negative equity have several strategies to consider. Doing a negative equity trade-in depends on your finances, your goals, and your willingness to extend your loan term or increase your monthly payments.
One common route is to have the negative equity rolled into the loan on your next vehicle. In this case, the amount you still owe on your old car is added to the loan for your new car. While this can increase the monthly payment, it also allows you to move forward with a new vehicle without having to pay the negative equity in cash. Another option is to make a down payment to cover some or all of the negative equity out of your own pocket. For example, if you’re $2,000 upside down, putting $2,000 down on the new car can help you start your new loan without carrying that debt forward.
How much negative equity can be rolled over depends on several factors, including your credit profile and how much of the previous loan has been paid. In most cases, lenders allow customers with solid credit to rollover several thousand dollars in negative equity, provided the new car’s value justifies the combined loan amount.
Choosing the Right Vehicle Matters
Not all vehicles are equal when it comes to offsetting a negative equity trade-in. Choosing the right model with strong resale value, competitive pricing, and available incentives can help reduce or even cancel out the financial impact of carrying negative equity into your next loan. Opting for a less expensive or used vehicle can help you achieve positive equity more quickly. At Aschenbach Ford, we’re proud to offer vehicles like the Ford Escape, Explorer, and F-150 that offer solid value, great reliability, and strong trade-in projections down the line. Choosing the right car plays a major role in how successful your trade-in transaction will be. Our sales professionals are here to guide you through our inventory and identify the vehicles that give you the most financial leverage.
Timing Your Trade-In
If you’re wondering how to do a negative equity trade-in the smart way, timing plays a role. Waiting a few extra months can sometimes shift your loan balance and vehicle value closer together, especially if you’re making extra payments or if the used car market is appreciating. However, if your current vehicle needs costly repairs, lacks reliability, or no longer suits your lifestyle, waiting might not be the best choice. In these situations, getting into a dependable vehicle with a manageable payment, even if it means rolling over some negative equity, may be the better long-term decision.
Ready To Explore Your Options?
If you’re dealing with negative equity and thinking about trading in your vehicle, Aschenbach Ford is ready to help. From clear trade-in appraisals to customized financing plans, we’ll help you find the best way to trade in a car with negative equity based on your budget, your needs, and your financial goals. We’ve helped hundreds of drivers throughout our community navigate the complexities of negative equity trade-ins, and we can help you, too. Visit us today in Wytheville, VA!
