{"id":23831,"date":"2025-12-13T08:35:56","date_gmt":"2025-12-13T08:35:56","guid":{"rendered":"https:\/\/finderica.com\/?p=23831"},"modified":"2025-12-13T08:35:56","modified_gmt":"2025-12-13T08:35:56","slug":"how-to-trade-in-a-car-with-negative-equity","status":"publish","type":"post","link":"https:\/\/finderica.com\/?p=23831","title":{"rendered":"How to Trade in a Car With Negative Equity"},"content":{"rendered":"\n
\n

\"ScoreCard<\/p>\n

When you walked into the dealership, you fell in love with your current car. It was so shiny and new.<\/p>\n

Five years later, you\u2019ve fallen out of love with your gas-guzzler with the thread-bare tires and are wondering if you could just trade it in for the next beauty.<\/p>\n

Then you remember you still owe on your current hunk of junk because you took the dealer\u2019s offer for a loan that left you digging out of debt<\/a> for six or seven years (or more). If you owe more money than your car is worth, your loan is\u00a0underwater.<\/p>\n

Unfortunately, there\u2019s not much use staring in the rearview mirror at this point about what you should have done with your old car\u2019s loan, but you still have options to recover \u2014 it\u2019s just a matter of making smart financial decisions.<\/p>\n

How Do You Get \u2018Underwater\u2019 on a Car Loan?<\/h2>\n

You\u2019re not the first person to fall for a set of wheels that turns out to be a budget buster, especially as car prices have continued to climb. Kelley\u2019s Blue Book says the average new car price passed the $50,000<\/a> mark in September 2025. The average loan amount for a vehicle \u2014 new or used \u2014 was $24,297 in the third quarter of 2024, according to Experian<\/a>.<\/p>\n

To offset the cost, more people are lengthening their loan terms to lower their monthly payments. In fact, the 72-month car loan is now the most popular car loan option, with the 84-month loan coming in second, according to Edmunds. For the non-mathletes among us, that\u2019s a six- or seven-year car loan.<\/p>\n

Then consider that new cars lose 20% of the value the moment you drive them off the lot and depreciation accounts for more than a third of the average annual cost to own a car, according to AAA<\/a>.<\/p>\n

All of those factors combine to create the scenario where you owe more than your car is worth, which means you have negative equity in your loan \u2014 aka, your car loan is underwater or upside down.<\/p>\n

What to Do If You Have an Upside-Down Car Loan<\/h2>\n

Before we get ahead of ourselves, are you sure your vehicle is worth less than what you owe? Let\u2019s run the numbers.<\/p>\n

How to Calculate Your Car\u2019s Equity<\/h3>\n

Here\u2019s how to calculate the equity in your vehicle:<\/p>\n

Value of your vehicle \u2013 loan payoff amount = equity<\/p>\n

You can find out how much your vehicle is worth by checking National Automobile Dealers Association\u2019s Guide<\/a>, Edmunds<\/a> and Kelley Blue Book<\/a>.<\/p>\n

When figuring out how much you owe on the loan, use the loan payoff amount and not the principal, as the payoff amount may include things like fees and taxes you still owe on.<\/p>\n

So if your car\u2019s value was $18,000 and your loan payoff was $15,000, you\u2019d have $3,000 in positive equity. Yay! If you want to trade in your car for a newer one, the dealer should apply that $3,000 toward your down payment, thus reducing the overall amount you pay for your next car. Congrats!<\/p>\n

However, if your car\u2019s value was $18,000 and your loan payoff amount was $20,000, you\u2019d have $2,000 in negative equity \u2014 you owe more on your car than it\u2019s worth. Sorry.<\/p>\n

But that\u2019s why we\u2019re here, so let\u2019s look at your options and get you on the fast track to financial freedom.<\/p>\n

How to Trade in a Car With Negative Equity<\/h3>\n

Stuck with an underwater car loan on a vehicle that you need to unload? Here are some options:<\/p>\n

1. Hang Onto Your Car Until Your Loan Is No Longer Underwater<\/h4>\n

If you can, hold onto your car until you pay off the car or at least get out from underwater. If your current payment is too high, consider refinancing your loan with a company like Gravity Lending<\/a>. Also consider other ways you can make extra cash<\/a> to put toward your car payment \u2014 have you compared auto insurance rates<\/a> lately?<\/p>\n

If you can hold onto the car after you\u2019ve paid off the loan, that\u2019s money you could be saving, potentially for a down payment on your next car.<\/p>\n

Yes, holding out isn\u2019t always an option \u2014 especially if your current car needs pricy repairs \u2014 but you should at least weigh the cost of repairs vs. the long-term financial benefits of holding onto your old wheels.<\/p>\n

2. Sell the Car Yourself<\/h4>\n

This option may be the most labor intensive way to get yourself out of your underwater car loan, but it could also be among the most lucrative: Sell the car yourself.<\/p>\n

The payoff for the extra effort could be worth your time as opposed to trading it in at the dealership \u2014 to the tune of of a few thousand dollars, depending on the car.<\/p>\n

If you know someone in your network of family, friends and coworkers who\u2019d like to buy the car, it makes the process of selling a little easier. Otherwise, you\u2019ll need to advertise the car and sort through prospective buyers who\u2019ll probably want to schedule a test drive. And you might need to head to the bank to transfer the title since you still owe on the car.<\/p>\n

3. Roll Over Your Underwater Car Loan Into a Lease<\/h4>\n

Although leasing a car means you won\u2019t own the vehicle, you can benefit from the fact that you don\u2019t have to keep paying down negative equity when you reach the end of the lease term.<\/p>\n

\u201cIt makes their lease payments larger \u2014 that\u2019s obviously a negative \u2014 but on the positive side, they don\u2019t have to worry about being underwater with a lease,\u201d said Todd Christensen, Accredited Financial Counselor and Education Manager at moneyfit.org.<\/p>\n

4. Roll Over the Amount You Owe Into a New Auto Loan<\/h4>\n

If you\u2019ve heard or seen any dealership ads that promise to pay off your loan and put you into a new car, you may be thinking what a great idea it is. Well\u2026<\/p>\n

\u201cThis is a terrible idea, but it\u2019s an option, and a lot of people take it because it seems easy, but it makes things worse,\u201d Christensen said. \u201cIt makes it even harder to get out of debt.\u201d<\/p>\n

That whole promise to pay off your loan isn\u2019t exactly accurate, according to the FTC<\/a> \u2014 the dealership will pay the bank to satisfy what you owe, but they\u2019ll add that amount to your next loan or subtract it from your down payment.<\/p>\n

And maybe they\u2019ll tack on a fee, just for good measure.<\/p>\n

And<\/i> because the dealer had to finance the remainder of your old loan plus the new one because you couldn\u2019t pay off the first \u2014 thus making the new loan riskier \u2014 you can also expect to pay a higher interest rate.<\/p>\n

And<\/i> adding your negative equity to your new loan amount probably puts you underwater on the next car loan as soon as you sign the papers. So the vicious cycle continues.<\/p>\n

It all adds up to a bad idea.<\/p>\n

But if this is your only option, Christensen did suggest ways you could minimize your next loan:<\/p>\n

\n
    \n
  1. \n

    Downsize to a cheaper car. If you\u2019re currently paying for a half-ton pickup and can rollover your loan into a midsize sedan, you could be looking at a smaller payment even after adding the underwater debt amount into the new loan. Also, skip the premium package.<\/p>\n<\/li>\n

  2. \n

    Apply for a shorter loan term. You\u2019ll pay more per month, but if you agree to a five-year loan instead of taking the seven-year term, you\u2019ll pay less in interest in the long run and it helps reduce the chances you\u2019ll end up with another underwater loan.<\/p>\n<\/li>\n

  3. \n

    Look for cash-back offers on the next car. If the rebate is large enough, you might be able to use it to pay off the negative equity on your old loan. <\/p>\n<\/li>\n

  4. \n

    Get a loan preapproval. Shopping around for a preapproved auto loan for your new loan potentially helps you snag a lower interest rate than the one a dealership would offer.<\/p>\n<\/li>\n<\/ol>\n<\/div>\n

    None of these options will absolutely prevent you from starting out underwater on your next car loan, but they can help reduce the time you\u2019ll spend climbing out of the hole.<\/p>\n

    Tiffany Wendeln Connors is senior managing editor at The SS. Read <\/i>her bio and other work here<\/i>, then catch her on Twitter @TiffanyWendeln.<\/i><\/p>\n

    <\/p>\n

    <\/p>\n

    <\/p>\n