How to Trade a Car with Negative Equity?

Trading a car with a loan always seems a feasible option in exchange for a new car; unless, you are trading in a car with negative equity. According to the auto trade-in complete guide , negative equity can be explained as a situation when you have bought your car on loan and its value is quickly depreciated and now you still owe even a higher amount to your lender than the car’s current price. It is also called a car trade-in upside down.

It depends on specific scenarios whether trading in an upside-down car is a smart decision or not.

If you are facing negative equity on your car because you have signed a larger number of smaller installments for a longer period of time then it is obvious that you are not comfortable paying back the loan. So, you should be smart enough to trade-in your car with an affordable one.

On the other hand, if you are looking to trade-in your negative equity car just to have an upgraded car’s model then it would not be a smart decision because the same negative equity would be implicated right after the new car’s purchase that would be a disaster for you in the form of larger debt.

Negative equity while car trade-in means that you owe your car lender much more than your car’s current value; however, negative equity car trade-in is still possible and you can still trade-in your car upside down.

There are two ways of trading in a car with negative equity.

🟡 You can either pay the difference - between the loan value and your car’s value - before car trade-in, or;

🟡 You can rollover the owed amount into a new car’s loan - transferring your negative equity into your other car’s loan. Beware! According to car trade in useful tips , it is not recommended to avoid a larger debt.

When you have a negative equity car loan and you want to trade-in your car with another one for whatever reason. Don’t let the dealers take you for granted; instead, you should always try your best to have the best trade-in deal even if you have a car with negative equity.

Following are some options related to trading in an upside down car. Keep them in mind to get the best trade-in deal even with a negative equity.

Paying off your negative equity is always the best option before trading your car with negative equity. Calculate the difference between your car’s value and the remaining loan and pay it off with your own pocket and then trade-in your car with another one.

If you don’t have any cash to pay back the negative equity out-of-the-pocket then dealers may suggest you to rollover your negative equity into a next car loan when you go for a trade-in option.

It is NOT recommended at all because you are already facing negative equity and this option will make you pay a higher interest rate on your other car’s purchase too and you will be in a huge debt for a longer period.

The best way  of car trade-in upside down is to trade-in with an inexpensive car. In this way, you can get rid of the negative equity and you can start fresh with a new car’s financing deal. It is the most recommended option by the experts to get rid of the negative equity.

If you don’t have any cash to get rid of negative equity before a car trade-in, you should get a small personal loan to pay off the negative equity and now you can easily trade-in your car with a newer one with a positive equity. Furthermore, personal loan’s interest rates may be lower as compared to car’s loans.

The maximum negative equity that can be transferred to your new car is around 125% . It means your loan value should not be more than 125% of your car’s actual worth. If it is more than 125% then your next car’s loan would not be approved.

Your dealer will always be able to pay off your negative equity if your LTV is not more than 125%. Infact, the dealer will always offer to pay off this loan or roll over this (loan with negative equity) with a newer auto loan with a higher interest than this one. It may seem feasible but in reality, it will be a more messy situation for you in the next loan’s duration because you will have to take care of your  next car’ loan that is beginning with a negative equity.

There are some certain ways of trading in an upside down car like paying the difference between loan and car’s worth before trade-in, rolling over the previous loan with a new traded car loan and getting a personal loan to pay off the negative equity etc.

You should always contact our expert car dealers to consult your particular case regarding negative equity. We help you trade-in your car in Maryland by counseling you and giving you the most feasible deal after considering your trade-in tax credit in Maryland .