Trading in a Car with Negative Equity
Trading in your current vehicle for your next car is an important financial decision. As a result, it’s always a smart decision to consider your financial situation and weigh your options before you commit to buying. One particularly important concept to understand is what’s known as equity. Equity can be both positive or negative depending on the circumstances and it’s essential to understand the difference between them before committing to a vehicle purchase. Germain Honda of Beavercreek wants to arm you with all the information you need to make a smart buying decision when the time comes to trade in your vehicle.
What’s the Difference between Positive and Negative Equity?
The concepts of positive and negative equity relate to how much your vehicle is worth relative to the amount that you still owe on your auto loan. Beginning with positive equity, this is a less-common situation where the trade-in value of your vehicle is higher than the payoff amount. This is certainly a favorable position to be in and can help pay off your remaining loan balance while providing additional funds to put toward your new vehicle.
The opposite scenario involves negative equity. Also known as being “upside-down” on an auto loan, this unfavorable situation is when you owe more than your vehicle is worth when trading it in. To avoid digging yourself into a deeper financial hole, it’s typically recommended that you pay off more of the vehicle’s balance to close the gap in value. You can always contact your lender to find out your remaining balance. Compare this figure to your vehicle’s estimated value and you can determine if you’re upside down on your loan.
Can I Trade In My Car with Negative Equity?
While it’s certainly not an ideal solution, it is possible to trade in your car even if you’re in a negative equity position. No matter if your driving habits have changed, you need to downsize to a smaller vehicle, or there are financial reasons that motivate your decision to trade your vehicle in – trading in a vehicle with negative equity is possible. In certain situations, you may be able to roll the negative equity into a new car loan. It’s important to remember that while this is certainly convenient, you’re still responsible for the additional negative equity.
For most buyers, it’s worth delaying a new car purchase until you’ve paid down more of your remaining auto loan balance or consider shopping for an older used vehicle that’s more aligned with your budget. Always take a moment to evaluate your financial situation before you make any decisions regarding your trade-in.
Shop New & Used Vehicles at Germain Honda of Beavercreek
Our team of finance experts at Germain Honda of Beavercreek is standing by to help you find a vehicle that your head and heart can agree on. We maintain close relationships with specialized lenders that can secure a loan for your specific financial goals. Better still, we have a massive selection of the latest Honda models along with quality used vehicles to suit virtually every type of budget. Shop with confidence at Germain Honda of Beavercreek!