Being upside down on your auto loan doesn't necessarily prevent you from getting rid of your car. However, trading in a vehicle on a bad credit auto loan is typically only possible if it is paid off or you have equity in it.

Nearly all bad credit lenders require a down payment. It can be in the form of cash, trade-in equity, or a combination of the two. So, you can trade in your vehicle and apply its value toward your new loan. However, this will only work if it is paid off or you have equity in the vehicle.

Equity and Bad Credit Auto Loans

Get Rid of a Car That You Are Upside Down On
Trade equity is the difference between what a vehicle is worth and how much is owed on it. And when it comes to trade-ins, the dealer appraises your car and assigns a value to it. They will consider a number of factors, including its age, mileage, and condition, among others.

You can get an idea for your trade-in's value on websites like Edmunds or Kelley Blue Book. They have trade-in appraisal tools that can give you an approximate value. But you should keep in mind that these are only guides.

The next step is determining its trade equity. If your car is paid off, its entire trade value can be used as part (or all) of your down payment. But if its trade value is less than what you still owe on the car, then the difference is known as negative equity.

Ridding Yourself of a Vehicle with Negative Equity

When your trade-in has negative equity, it hurts your chances of getting approved for a bad credit auto loan. This is because negative equity doesn't just disappear. You either have to pay the difference out of pocket or roll it over into the new loan. And that's IF the lender will allow you to do this.

Lenders rarely allow borrowers with bad credit to trade in a car with negative equity. You are asking them to loan more money than the value of the car you are trying to finance. Combine that with bad credit, and your chances of being approved are typically slim.

Also, keep in mind that rolling over negative equity into a new loan puts you in a bad situation. It means that you will essentially be paying finance charges on two loans at once. Because poor credit auto loans come with higher than average interest rates, this can be a very expensive course of action.

So, financially speaking, it is generally wiser to pay off any negative equity out of pocket. If that's not an option, it may be best for you to hold off on your car purchase until you have either paid off or built equity in your current vehicle.

The Bottom Line

If it is paid off or you have equity in it, getting rid of a car that you were once upside down on can really help you out. It can go toward your down payment. And if you have cash to provide as well, you can reduce the amount of your loan. Doing this will provide you with many benefits, including improving your chances of getting approved.

If you have bad credit and are struggling to get approved for an auto loan, Auto Credit Express can help. We assist consumers with credit issues by connecting them to a local dealership that is trained in special finance.

Our service is free and puts you under no obligation to purchase anything. So, you have nothing to lose. Get started today by completing our simple and secure online auto loan request.