As anyone at Auto Credit Express will tell you, a few years ago, the answer to this question would’ve been an emphatic “no!” But times have changed…

When does it make sense to do this?

It only makes sense to roll negative equity into a new car if you have no other alternative. What you are essentially doing is paying for two cars at the same time – your old car on top of your new car. This is compounded by the fact that the interest rates on bad credit car loans are high. So you’re paying a high interest rate on two cars, not just one.

It only makes sense if the car you are currently driving is not reliable or the new car you will be buying has something like better gas mileage or insurance rates that will help offset the payment increase. It also helps if you have some cash to help offset the negative equity.

Will the bank do it?

That depends upon the situation. Most sub prime lenders use either Kelley Blue Book or the NADA guide as a benchmark (as a rule, western banks use Kelley, while Midwest and eastern banks use NADA). Lenders will usually allow the dealer to sell the car for 15% over the trade in price.

What about the dealer?

Again, it depends on a number of things. If the difference between the dealer’s selling price and 15% over the trade value covers the negative equity, the seller will probably go for it. If there isn’t that kind of room in the deal, you can either try and negotiate a lower price or move to a different vehicle. In some cases, the dealer can call the bank to try and raise the 15% cap.

The Bottom Line

It is never a good idea to roll negative equity into another car. Because of the high interest rates of a bad credit auto loan, it can be especially painful. By putting cash down in addition to your trade in, you can cut down on the amount of negative equity. Go to our web site at www.autocreditexpress.com. There you will find a finance calculator that will tell you how much the negative equity will cost you. Remember, at Auto Credit Express, our goal is to get you back “on the road” to good credit.