Often referred to being “upside down” or “underwater” in an auto loan, having negative equity means your vehicle is worth less than the loan balance. Most car owners experience being underwater at some point during their loan, and just because you have negative equity doesn’t always mean you can’t trade it in.

Step One: Get a Payoff Quote

To find out if you have negative equity in your vehicle, you need to request a payoff amount from your lender. Listed in the payoff amount is the interest accrued since the last loan statement and any early payoff penalties (there shouldn’t be any). Your previous statement only shows how much you owe on the date it was issued, so you can’t get a true payoff amount by checking it.

Once you reach out to your lender, you have a certain number of days to pay the balance, usually 10. You can send the amount to your lender via e-check, a physical check in the mail, or in person. If you receive a payoff quote and realize you can’t pay off the balance within the given time frame, that’s okay. When the time comes, you simply request another payoff.

Step Two: Find Your Car’s Actual Cash Value

To determine if you have negative equity, you need to find your car’s actual cash value. You can do this by visiting vehicle valuation sites such as NADAguides, or by taking it to a dealership for an actual appraisal. Both are fine, but the most accurate number comes from an appraisal at a dealer. When you do this, you have the opportunity to negotiate a solid trade-in value, and aren’t stuck guessing about what it might be.

Step Three: Weigh Your Options

If you find that you have negative equity after receiving a payoff quote and comparing it to the value of your car, you need to consider your trade-in options. There are three available to you:

  1. How to Trade in a Car with Negative EquityRoll over the debt – Not all lenders allow this, but if they do, you could roll over the negative equity into the new loan. However, this doesn’t remove the negative equity, and you essentially end up paying for two vehicles at the same time.
  2. Cover the difference – If you can afford to pay the difference, you can use cash to cover the negative equity amount and pay off the loan.
  3. Wait until there’s equity – If you can’t roll over or cover the negative equity, your best bet is to wait until you have equity before trading in your car.

Looking for a Lender to Work With?

If you have a trade-in you want to use as a down payment, but worry your credit’s holding you back from an approval, let us help.

At Auto Credit Express, we've helped countless people get connected to special finance dealerships in their area for over 20 years. These dealers have the lending resources that work with people who struggle with bad credit, no credit, and even bankruptcy. To get started today, simply fill out our auto loan request form. The process is fast, easy, and free of charge and obligation. So, what are you waiting for? Get started right now!