My clients often ask what they can do with the negative equity in their car. I thought I would share my answer that I give them with you, just in case you may have had the same question pop up in your life. When you owe more than what you car is worth it is referred to as being upside down in your car loan. Every new car that is driven off the dealers lot automatically has instant negative equity. Cars never increase in value, no matter how long you hold on to them.
You have several options for getting rid of your car with less than perfect equity.
Dealers take trade-ins like this every day. However, you will want to take a close look at all the numbers and see if it makes financial sense for you to trade your vehicle in to the dealer or not. You may find it is better for you to keep your car and pay it off.
If you have good credit you may be in a position to buy another vehicle, and roll your negative equity into the vehicle you are buying. Keep in mind that the negative equity didn’t go away by magic. You just rolled it over into another car loan. You still have to pay it off.
One way to help get rid of less than perfect credit is to put a larger down payment on a new car that you want to buy. By doing this you will help eliminate some of the negative equity so you won’t have as much to rollover into your new loan. If you’re looking at a new car, shop around and find one that has rebate incentives with low or zero interest. Some of the manufacturers rebates can help offset your negative equity.
If you’re like most people today you are strapped for cash, and have a hard time coming up with any extra cash. That’s why it can be beneficial to look for the manufacturer rebates.
Take a look at your potential interest rate. If you are paying a high rate of interest on the car you now have, you may be able to save some money by rolling over your negative equity into a car with a lower interest rate.
Be careful about rolling over your negative equity into a new car loan. This practice of always rolling over the negative equity has gotten a lot of people into deep financial trouble. Ideally you should always set up your car payments so you can pay the car off faster than what it is depreciating. Financing your car for 60 months or longer only helps the lenders.
If you find yourself with negative equity in your car, it may be beneficial for you to speak with an auto broker about helping you get out of your upside down loan. Auto brokers are known for working with people instead of just trying to sell them a car today.
