How to Trade in a Negative Equity Car in Glen Abbey

How to Trade in a Negative Equity Car in Glen Abbey

Posted on July 7, 2021

Today’s blog post is based on a client situation we helped them deal with earlier this week. The client needed to replace their car but was in negative equity, which needed to be addressed before they could trade it in.

It was an interesting situation so we asked our Glen Abbey auto loans team to outline what they did to help the customer.

What is negative equity?

Negative equity occurs when a car’s value depreciates so it falls below the amount still outstanding on the loan you used to pay for it.

For example, you bought a car worth $40,000 with a $35,000 auto loan. Depreciation means the car is now worth $25,000 but you still have $30,000 outstanding on the loan.

That means the car has $5,000 of negative equity because it’s worth $5k less than the amount on the loan.

There are numerous factors that influence how and how much a car will depreciate including market forces, make and model, length of the loan, current world events and the economy can all influence how fast a car will lose value.

How to trade in a car with negative equity

We wouldn’t recommend trading in a car with negative equity unless you had to as it can be complicated. However, if a situation arises where you have to sell it, you can.

You have three main options if you need to trade in a car with negative equity.

You can:

Settle the amount in cash – If you absolutely need to trade your old car in, you can pay the difference in cash. In the example above, you would need to pay the $5k difference in cash to even the score. This could be an extra lump sum as down payment or a specific payment to settle the old loan.

Roll the amount into a new auto loan – If you’re buying a new car with another auto loan, you could add the $5k to the new loan to make up the difference. Depending on your credit score and down payment, it is possible to borrow enough to buy the new car and settle the negative equity.

Keep your current car until settled – Less than ideal if time is an issue, but the easiest method financially. Depending on why you’re trading in, you could keep the car and wait until you have paid the loan enough to be upright again.

That last option is the most desirable from a financial point of view as it doesn’t require a cash injection or increasing the auto loan to settle. However, depending on your situation and why you need to trade in, it may not be the best option.

Negative equity is a situation many new car buyers find themselves in and is completely normal. All new cars depreciate, it’s only the speed that differs.

Most auto loans will be upside down for a time and it’s nothing to worry about. It only becomes an issue when you need to trade in or sell the car. Even then there are options.

Contact Unique Chrysler for help, advice and competitive Glen Abbey car finance and leasing.

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