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At Aschenbach Chevy GMC, we’ve seen it all when it comes to trading in, from upside-down loans and rapid depreciation to customers stuck in vehicles that no longer meet their needs. Suppose you’re considering a negative equity trade-in. In that case, you’re not alone, as many drivers find themselves in this situation, especially after buying a car with little to no down payment or after rapid depreciation on a vehicle that they financed years ago. Trading in a car with negative equity can be done with the right strategy and guidance, and in this article, we’ll walk you through everything you need to know when it comes to negative equity trade-ins. Visit us today in Wytheville, VA!
What Is Negative Equity?
Negative equity occurs when your car loan’s balance exceeds the current value of your vehicle. A longer loan term can increase the risk of negative equity due to ongoing depreciation of the vehicle, which may also lead to higher interest payments over time. Let’s say your car is worth $15,000, but the loan balance is $19,000, so in result you would have $4,000 in negative equity. As new cars depreciate quickly, the situation isn’t uncommon, because vehicles lose up to 20% of their value in the first year alone. If you financed most or all of your vehicle’s cost, your loan may be outpacing the resale value for a while. A negative equity trade-in involves trading in your car in a way that the difference would be made up through various means, including opening a new loan, paying in cash, going cheaper on your next vehicle, or opting for a lease.
Can I Trade In A Car With Negative Equity?
Yes, you can opt for a negative equity trade-in; the key is understanding your options and making a plan. When you visit Aschenbach Chevy GMC, we’ll assess your current vehicle and help determine whether it makes sense to roll the balance into a new loan, cover the difference in cash, or explore other creative solutions. Working with an experienced dealer like ours makes a huge difference. We’ve helped hundreds of customers navigate negative equity trade-ins, and we’ll do the same for you with transparency and care.
The Best Way to Trade In A Car With Negative Equity
The best path for trading in your vehicle depends on your current financial position, your next vehicle, and how much negative equity you’re working with.
Roll The Negative Equity Into A New Loan
You can roll the negative balance into your next vehicle loan if you qualify. This option is common but should be approached cautiously, especially if you’re already stretching your budget. For example, if you owe $4,000 more than your vehicle is worth and you buy a new car for $28,000, your new loan would be $32,000. Keep in mind this increases your monthly payments and could lead to more negative equity if the new vehicle depreciates quickly, and it’s recommended that you don’t exceed 125% of your loan-to-value ratio. The strategy works best when you have a stable income with good credit, you’re planning to buy a vehicle with strong long-term value, or you plan to hold on to the new vehicle long enough to regain equity.
Pay The Difference In Cash
If you have some savings available, think about addressing the negative equity directly with your own funds. One option to trade in a vehicle with negative equity is to pay off the difference out of your own pocket. While it might be painful initially, it helps you avoid starting a new loan at a disadvantage and can save you significant money over time, especially on interest. We’ll work with you to determine exactly how much you need to pay to break even on your trade.
Choose A More Affordable Vehicle
Sometimes, it makes more sense to trade down for your negative equity trade-in. Choosing a more affordable vehicle can offset the cost of rolling over some negative equity while still lowering monthly expenses. At Aschenbach Chevy GMC, we carry a wide selection of quality used and certified pre-owned vehicles that may fit this bill perfectly. In some cases, we can even help you trade it into a newer vehicle with lower payments than what you’re paying now.
Lease Instead of Buy
Leasing can be a good option for customers in need of a negative equity trade-in. While the rolled-over balance will still affect your lease payment, leasing tends to have lower monthly costs overall, especially if you’re trading in a vehicle that’s becoming too expensive to maintain or finance. Our specialists can help you determine whether it might ease the financial burden and give you a clean slate in a few years.
How Much Negative Equity Can I Roll Over?
The answer depends on your credit, the vehicle you’re purchasing, and the loan structure. Lenders typically consider the total loan-to-value ratio when deciding how much negative equity they want to finance. Most lenders will finance up to 120 to 130% of the vehicle’s value, though this can vary. For example, if you’re buying a vehicle worth $30,000, some lenders will allow a total loan of $36,000 to $39,000, including rolled-over negative equity, taxes, and fees.
Your best bet would be to sit down with our finance team so that we can show you realistic numbers based on your credit profile and help you understand what’s possible without putting you in a risky position.
We’re Here To Help
At Aschenbach Chevy GMC, we know that real life doesn’t always go according to plan. You may have had to buy a car quickly to have a reliable commuter for work, or your previous vehicle lost value faster than expected. Whatever your reason, negative equity trade-ins don’t have to feel like a trap. We’ll help you weigh your options clearly and confidently so you can drive away in a vehicle that fits your life and budget. Start your appraisal online and visit us today in Wytheville, VA!
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