How to Trade a Car with Negative Equity? [Best Options]
Tradinga car with a loanalways seems a feasible option inexchange for a new car; unless, you are trading in a car with negative equity.According to theauto trade-in complete guide,negative equity can be explained as a situation when you have bought your caron loan and its value is quickly depreciated and now you still owe even ahigher amount to your lender than the car’s current price. It is also called acar trade-in upside down.
Is ItSmart to Trade in a Car with Negative Equity?
It depends onspecific scenarios whether trading in an upside-down car is a smart decision ornot.
If you are facingnegative equity on your car because you have signed a larger number of smallerinstallments for a longer period of time then it is obvious that you are notcomfortable paying back the loan. So, you should be smart enough to trade-inyour car with an affordable one.
On the other hand,if you are looking to trade-in your negative equity car just to have anupgraded car’s model then it would not be a smart decision because the samenegative equity would be implicated right after the new car’s purchase thatwould be a disaster for you in the form of larger debt.
HowDoes Trading in a Vehicle with Negative Equity Work?
Negative equitywhile car trade-in means that you owe your car lender much more than your car’scurrent value; however, negative equity car trade-in is still possible and youcan still trade-in your car upside down.
There are two waysof trading in a car with negative equity.
🟡You caneither pay the difference - between the loan value and your car’s value -before car trade-in, or;
🟡You canrollover the owed amount into a new car’s loan - transferring your negativeequity into your other car’s loan. Beware! According tocar trade in useful tips, it is not recommended to avoid a largerdebt.
Best Options for Trading Car withNegative Equity
When you have anegative equity car loan and you want to trade-in your car with another one forwhatever reason. Don’t let the dealers take you for granted; instead, youshould always try your best to have the best trade-in deal even if you have acar with negative equity.
Following are someoptions related to trading in an upside down car. Keep them in mind to get thebest trade-in deal even with a negative equity.
Pay of the Negative Equity First
Payingoff your negative equity is always the best option before trading your car withnegative equity. Calculate the difference between your car’s value and theremaining loan and pay it off with your own pocket and then trade-in your carwith another one.
Rollover the Negative Equity
Ifyou don’t have any cash to pay back the negative equity out-of-the-pocket thendealers may suggest you to rollover your negative equity into a next car loanwhen you go for a trade-in option.
Itis NOT recommended at all because you are already facing negative equity andthis option will make you pay a higher interest rate on your other car’spurchase too and you will be in a huge debt for a longer period.
Trade-in with an Inexpensive Car
Thebest way of car trade-in upside down isto trade-in with an inexpensive car. In this way, you can get rid of thenegative equity and you can start fresh with a new car’s financing deal. It isthe most recommended option by the experts to get rid of the negative equity.
Get aPersonal Loan to Balance Negative Equity
Ifyou don’t have any cash to get rid of negative equity before a car trade-in,you should get a small personal loan to pay off the negative equity and now youcan easily trade-in your car with a newer one with a positive equity.Furthermore, personal loan’s interest rates may be lower as compared to car’sloans.
How Much Negative Equity Is TooMuch on a Car?
The maximumnegative equity that can be transferred to your new car is around125%. It means yourloan value should not be more than 125%ofyour car’s actual worth. If it is more than 125% then your next car’s loanwould not be approved.
Will aCar Dealer Pay Off Negative Equity?
Your dealer willalways be able to pay off your negative equity if your LTV is not more than125%. Infact, the dealer will always offer to pay off this loan or roll overthis (loan with negative equity) with a newer auto loan with a higher interestthan this one. It may seem feasible but in reality, it will be a more messysituation for you in the next loan’s duration because you will have to takecare of your next car’ loan that is beginningwith a negative equity.
Takeaway
There are somecertain ways of trading in an upside down car like paying the differencebetween loan and car’s worth before trade-in, rolling over the previous loanwith a new traded car loan and getting a personal loan to pay off the negativeequity etc.
You should alwayscontact our expert car dealers to consult your particular case regardingnegative equity.We help you trade-in your car inMarylandby counseling you and giving you the most feasible deal afterconsidering yourtrade-in tax credit in Maryland.
