Rolling negative equity is probably the biggest rookie mistake I’ve seen from inexperienced car buyers (who think they are experienced because they’ve bought so many cars).
No matter which way you look at it, when you bought your car, you agreed to pay a certain amount until the load was paid in full. Simple right? Well, what happens when you’re ready to trade in your car before you’ve paid off the loan? That’s when we start to take a look at what kind of equity you have in the car.
- Positive Equity. This means your car is worth MORE than the amount you still owe on the car.
- Negative Equity. This means your car is worth LESS than the amount you still owe on the car.
Positive equity is a great thing and you can use that amount to as a down payment on your next car.
Negative equity however is rolled onto your next loan. Making your next car even more expensive because you’re still obligated to pay the money you originally borrowed.
How do I get out of a car with negative equity?
Simply put, you pay it off. It’ll follow you around until you finally have a car that is worth more than the loan amount.
Another, although not as recommended, way is to lease a car for 3 years and turn the car back in at the end of the lease. Once the lease is done, your payments are done.
Can you trade in a car with negative equity and no down payment?
You can trade a car – no problem! But whatever negative equity you have on the car will carry over to the next one you get. No down payment is required either, you’ll just have a much higher car payment on your next car.
How much negative equity can I finance on a car?
The lending company will probably determine what they will allow based on your credit history. I’ve seen as much as $10,000 in negative equity roll over onto a new car. At which point, not a smart move at all… just pay off your loan, or enough to generate positive equity in your car before trading into something else.