Trading In a Car With Negative Equity: How It Works

Posted Friday, May 09, 2025

Facing a car loan that exceeds your vehicle's value, known as negative equity, can be a challenging situation. Issues can arise when trading in a car with negative equity for your next ride. However, you don’t have to freak out, as we will be exploring multiple strategies and tips in this blog to make the trade-in of a car with negative equity easier.

Before we proceed, let’s first understand what negative equity on a car is and how it happens.

What is Negative Equity on a Car, and How Does it Happen?

Negative equity on a car loan, also known as being "upside down," occurs when you owe more on your car loan than the car's current market value. Various factors play a part in creating this situation, including:

Depreciation: Cars lose value rapidly, especially in the first few years, meaning the loan balance can quickly exceed the car's worth. 

Longer Loan Terms: Stretching out the loan term to lower monthly payments can lead to paying more interest overall, and the car's value may depreciate faster than the loan balance decreases. 

High Interest Rates: Higher interest rates mean you're paying more overall, making it harder to catch up with the car's depreciation. 

Avoiding a Down Payment: Financing the full value of the car means you start with negative equity as soon as you drive off the lot. The reason is that you'll likely have higher monthly payments and a higher interest rate.

Challenges with Trading In a Car with Negative Equity 

If your car's current value is less than the amount you owe, you can face various challenges when trading in your car, such as:

You Still Owe Money: If you trade in your car, you'll still need to pay off the remaining balance on the loan, even if the trade-in value doesn't cover it. 

Increased Debt: Rolling the negative equity into a new loan means you'll be starting with a larger loan amount and potentially a longer repayment period. 

Higher Monthly Payments: The larger loan amount will likely result in higher monthly payments. 

How to Trade-In a Car with Negative Equity

While the challenges of having negative equity on a car loan cannot be denied, you can still trade in your car at a reliable used car dealership. Here is a step-by-step process to trade in your car and some tips to make your journey easier and get a better deal.

Determine Your Car Value

When it comes to trading in your car, you first need to determine your car’s current market value to better understand your situation. You can use online platforms like Kelley Blue Book (KBB) or Edmunds to get an estimate of your car's trade-in value. 

Find Out Your Loan Payoff Amount

After knowing your car’s worth, you need to find out the remaining loan on it. For that, contact your lender to get the exact amount you owe, including any outstanding interest and fees. 

Calculate Your Negative Equity

Now that you have both values required to calculate the negative equity on your car loan. You just need to subtract your car's trade-in value from the loan payoff amount. The difference is your negative equity. For instance, if you owe $15,000 on your car loan, but the vehicle is only worth $10,000, you have $5,000 in negative equity. 

Options for Trading in with Negative Equity

After calculating your car's equity, you can consider different options to proceed with your trade-in, such as:

Pay off the Negative Equity: This involves paying the difference between your loan balance and your car's value out of pocket before trading in your vehicle. 

Roll Over the Negative Equity: You can roll the negative equity into a new loan, but this will increase the total amount you owe and potentially lead to higher interest payments. If you are considering this option, make sure to choose the right dealerships that can offer you better loan terms according to your condition.

Delay the Trade-In: If possible, make extra payments on your current loan to reduce the negative equity before trading in your car. While this option might not be viable for every case, you can consider it depending on your needs and financial goals.

Trade in for a Less Expensive Car: You can trade in your car with negative equity for an affordable car to reduce your overall debt and monthly payments. To make this happen, make sure to trade in your vehicle at a dealership that has a wide range of used cars so you can easily find a good option within your budget.

Get a Personal Loan to Pay Off the Negative Equity: This can allow you to trade in with a clean slate and a new loan with a more manageable balance. 

Additional Tips for a Smooth Trade-In

No matter what car trade-in option you choose, here are some tips you can use to make your journey hassle-free.

Negotiate: Research the value of your trade-in and negotiate with the dealership. 

Get Multiple Trade-In Offers: Shop around to compare offers from different dealerships to get the best deal. 

Don't be Afraid to Walk Away: If a dealership isn't offering a fair deal, don't hesitate to shop elsewhere. 

Review the Contract Carefully: Before signing any documents, carefully review all terms and conditions of the loan and trade-in agreement. 

While trading in a car with negative equity may seem challenging, you can simplify the process by following the above steps and additional tips to get a better deal. With research and vigilance, you will be able to choose the right dealership and loan terms to navigate this complex scenario confidently.

Ensure a Smooth Trade-In with Honest Autos 

Navigating negative equity can be daunting, but Honest Autos is here to help you find the best solution for your situation. Whether you want to roll over the negative equity into a new loan or find a suitable car to reduce your overall debt and monthly payments, we can help. Our expert dealers will help you trade in your car more easily and drive away with your new ride confidently. 

Contact our dealership in Fruitland Park, Florida, and get to know how we can help you simplify trading in your car with negative equity.