Navigating A Trade-In When You Owe More Than Your Car’s Value
Trading in your vehicle should feel like a fresh start, but what if you owe more than it’s worth? This situation is commonly called negative equity, and happens when your loan balance is higher than your car’s value. While it can feel discouraging, it doesn’t have to trap you financially. At Crossroads Automotive Group, we’ve helped many drivers successfully handle a negative equity trade-in. Our goal is to guide you through the process so you can make a smart financial decision for your circumstances. In this article, we’ll explain what a negative equity trade-in involves, how to calculate your equity, and the pros and cons of trading while still upside down on your loan. Stop by any of our North Carolina or Virginia dealerships, and we’ll help you review your options.
What Is Negative Equity?
Negative equity happens when your auto loan balance exceeds the current market value of your car. For example, if you owe $22,000 but your car is only worth $17,000, you have $5,000 in negative equity. This situation is more common than many people realize. It often results from:
- Rolling a previous loan balance into a new loan
- Financing with no down payment or a small down payment
- Vehicle depreciation, especially within the first few years
- High-interest rate loans
Because a new car can lose 20% or more of its value in the first year, it’s easy to find yourself facing a negative equity trade-in sooner than expected.
How to Know If You Have Negative Equity
Before considering a negative equity trade-in, you’ll want to determine whether you’re upside down on your loan. Here’s how:
- Check your loan payoff amount. This is the total amount required to settle your loan, which you can get directly from your lender.
- Find your car’s market value. Use trusted resources like Kelley Blue Book, Edmunds, or get an appraisal at a Crossroads Automotive Group dealership.
- Do the math. Subtract your vehicle’s current value from your payoff amount. If the number is negative, that’s how much negative equity you’re carrying. If it’s zero or positive, you have equity in your car.
Knowing your numbers up front is the foundation for a successful negative equity trade-in.
Can You Trade In a Car With Negative Equity?
A negative equity trade-in is possible and fairly common. The dealership will pay off your existing loan, but any remaining balance gets rolled into your new loan. This means your new loan may start at a higher amount than the purchase price of your next vehicle.
For example, if you owe $20,000, your car is worth $16,000, and you purchase a vehicle for $25,000, your new loan would total $29,000. Understanding this rollover is key before making your decision on a negative equity trade-in.
Best Way to Trade In Car With Negative Equity
The best way to handle a negative equity trade-in is by minimizing its long-term financial impact. Some strategies include:
Make Up the Difference In Cash
Covering the negative equity up front helps reduce your new loan amount. While it may feel like a hit in the moment, it lowers total interest costs and allows you to build equity in your new vehicle faster.
Choose a Less Expensive Car
Opting for a lower-priced vehicle makes it easier to absorb the rolled-over balance. This can be especially beneficial if you choose a car with better fuel efficiency or lower mileage, helping reduce ongoing ownership costs.
Lease Instead of Finance
Leasing can sometimes be a smart move if you’re considering a negative equity trade-in. Some dealerships, including Crossroads Automotive Group, may allow the remaining balance to be folded into a lease. This could mean a lower monthly payment, though it’s important to review the lease terms carefully to avoid higher costs over time.
Delay Your Trade-In If You Can
If you’re not in urgent need of a new car, holding onto your current one longer and making extra payments toward the principal can reduce or even eliminate your negative equity before attempting a negative equity trade-in.
How Much Negative Equity Can I Roll Over?
You might be wondering, how much negative equity can I roll over into the next loan? The answer depends on your lender’s guidelines. Every financial institution sets different limits, often based on your credit score, the price of the new vehicle, and the loan-to-value ratio they’re willing to accept.
At Crossroads Automotive Group, our finance experts will explain these details, helping you understand how much negative equity can be rolled into your next deal. We’ll also walk you through how a negative equity trade-in affects your financing so you can make the most informed choice.
Trade In Today With Crossroads
While how to trade in a car with negative equity may sound daunting, it’s a challenge many drivers face, and it doesn’t have to stop you from moving forward. Whether you’re upgrading, downsizing, or simply ready for something new, a negative equity trade-in can be done strategically to keep you on track financially.
At Crossroads Automotive Group, we’re here to give you clarity and confidence as you move forward. Our team will review your loan details, explain your trade-in options, and help you make the choice that’s best for your situation. Ready to see your options? Visit one of our dealerships in North Carolina or Virginia today for a free appraisal and expert guidance on your negative equity trade-in.
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