Living near the glitz and glamour of Hollywood, it's no wonder you want a newer vehicle. But what if you're upside down in your auto loan? Trading in a car with negative equity in Los Angeles is possible, but being upside down can create some complications you should be aware of. Let's take a look at what negative equity is, and what you can do about it.

What Is Negative Equity?

Trading in a Car with Negative Equity in Los AngelesNegative equity simply means that you owe more on the loan than your vehicle is worth. This typically happens near the beginning of a loan, especially with new cars, since the steepest depreciation happens in their first year on the road. Depreciation can't be stopped, and it lowers the value of a vehicle over time as it accumulates mileage and experiences wear and tear.

Besides depreciation, there are a number of other things that can drive up the cost of your loan, widening the gap between the car's actual cash value (ACV) and what you owe. These items, such as dealer add-ons, an extended warranty, no down payment, and/or a high interest rate, all add to the total cost of financing.

Trade In Options with Negative Equity

Negative equity is quite common, and doesn't have much impact if you're planning on keeping your vehicle long term. However, when you need to trade in your car, being underwater can really take its toll.

When you trade in a vehicle with equity, the money left over once you pay off your loan can be pocketed, or used as a down payment on your next car. With negative equity, the money a dealership is willing to pay for your vehicle doesn't cover the amount owed on the loan.

In the Los Angeles area, you have a few options when you trade in a car with negative equity:

  • Pay the difference – Because a dealer is only going to pay you the ACV of the vehicle, which doesn't cover the loan balance, you can pay the difference in cash.
  • Roll over the balance – In some cases, you can roll the difference into a new loan. You need to be careful about doing this even though it might seem like a great way to get the newer care you're looking for. Adding the difference from your previous loan increases the total cost of your new loan, and you end up with negative equity in the new car right away.
  • Wait it out – You last option is to wait to trade in your vehicle until you have equity, or at least break even.

Before you decide on the best route, make sure you know about how much your car is worth. You can get estimated vehicle values from online valuation sites such as Kelley Blue Book or NADAguides.

Remember that these are only estimates, and the exact ACV a dealership might offer depends on their appraisal of your car. In order to get the most value from your vehicle, be sure to have it appraised by at least three dealers, making sure one is a franchised dealership of your brand.

Finding Somewhere to Trade In

Now that you know negative equity doesn't always ruin your chances of trading in a car, it's time to find a dealer in Los Angeles that can work with you. Here at Auto Credit Express, we can help with that.

Over the last 20 years, we've helped hundreds of thousands of people find the dealerships they need. We're teamed up with special finance dealers all across Los Angeles and the rest of the nation that work with people with bad credit. Simply fill out our easy, fast, and free auto loan request form, and we'll get to work matching you with a dealership in your area.