If your car keeps acting up and costing you money in repairs, trading it in might be the best decision you could make. Unfortunately, you may discover when you try to trade it in that the car has negative equity. If you have never encountered this before, there are several things you should know before you trade your car in.
What Is Negative Equity?
Cars tend to depreciate faster than people pay them off, and because of this, cars often have negative equity. Negative equity means you owe more on your car than what it is worth. In this situation, you could still trade your car in; however, the auto dealer is probably not going to give you credit for the full amount you owe on the car.
For example, if you owe $4,000 on your car and it is only worth $2,500, you will have $1,500 of negative equity to worry about. This is never a good situation to be in, but it is quite common. If you are in this situation, there are several options you could choose from for dealing with the negative equity.
What Options Do You Have to Avoid Losing Money?
If you do not like the idea of getting less for your trade in than what you owe, you could consider using one of these options:
- Sell your car outright—If you feel you could sell the car for the full amount you owe on it through a private buyer, this might be worth a shot. The downside to this option is that it may take some time to find a buyer. In addition, it could take a lot of effort to create ads for the car and show the car to potential buyers. The plus side is that you might be able to avoid losing money on the deal.
- Wait to trade it in—If you owe $4,000 on the car and your payments are around $400 per month, you might be able to get the car paid off within a year. If you waited to trade it in for a year, you would not have to worry about losing money. The downside to this option is that you might end up with several car repair bills in the meantime if the car has a lot of issues.
Both of these options can help you avoid losing money on the deal; however, you might not want to wait.
How Can You Trade Your Car In with Negative Equity?
The easiest solution you have for dealing with negative equity is to just accept it. If you really need to get a better car, you could simply visit an auto dealership and begin shopping. When you select the car you like, the dealer will tell you how much your old car is worth and will begin working on auto financing.
The negative equity will get added into the new loan, which means your new loan will be higher than it should have been, but at least you would be able to easily get a new car. When you do this, it might be wise to try to keep the car loan as short as possible. This could help you pay a lower amount in interest and help you reach positive equity in your new car faster.
While having negative equity in a car is not a positive thing, it is not something that will stop a dealer from giving you a loan. If you are interested in learning more about trade-in values and auto financing, visit a car dealership that offers financing options today, like Western Avenue Nissan.