You have negative equity when you owe more on your car loan than the vehicle is worth. If the vehicle would sell for $15,000 and your loan balance is $19,000, you have $4,000 of negative equity.
How it happens
- Vehicles lose value quickly, often faster than a loan balance falls in the first years.
- A small or no down payment means you start with little equity.
- A long term reduces the balance slowly.
- A balance carried over from a previous vehicle starts the new loan above the vehicle’s value.
Why it matters
It matters when you want to sell or trade the vehicle, or if it is written off. The sale price or insurance payment may not clear the loan, and you still owe the difference.
Rolling it into a new loan
A dealer may offer to add what you still owe to the loan on your next vehicle. That clears the old loan, but you are then borrowing more than the new vehicle costs and paying interest on the carried-over amount. Ask for the carried-over amount to be shown as its own line.
Your options
- Keep the vehicle and keep paying until the balance is below its value.
- Make extra payments, if your loan allows them without a charge.
- Pay the difference in cash when you sell or trade.
- If you must replace the vehicle, choose a less expensive one and a shorter term to limit what you carry over.