Drivetime Trade in Negative Equity: A Step-by-Step Guide

If you're stuck with a car loan and want to trade it in, you're not alone. According to the article, 1 in 5 car owners in the US are upside down on their loan, meaning they owe more on the car than it's worth.

This situation is known as negative equity. As the article explains, it's estimated that over 40% of car owners in the US are in this predicament.

To break free from negative equity, you'll need to understand your options and create a plan. The article provides a step-by-step guide to help you navigate this process.

First, you need to know your car's value. The article suggests checking the Kelley Blue Book (KBB) or Edmunds to determine your car's market value.

To calculate negative equity, you'll need to know your car's estimated value and the amount you owe on your car loan. You can find your car's estimated value using tools like Kelley Blue Book and Edmunds, which require inputting details like the year, make, and model of your car, and the number of miles on its odometer.

Contacting your lender is an easy way to find out how much money you owe on your car loan, usually by phone or by logging into your account on their website to view the payoff amount.

If the amount owed on your car loan is higher than your vehicle's estimated value, the difference between the two is negative equity. For example, if you owe $9,000 on your car loan and your vehicle has an estimated value of $6,000, you currently have $3,000 of negative equity.

Negative equity can happen when a vehicle's value drops below the amount remaining on the car loan, which is most common when a person buys a new vehicle without a down payment. During the first year of ownership, many new cars lose around 20 percent of their value.

To avoid rolling over negative equity into new loans, focus on the total loan cost, not just monthly payments, to avoid long-term financial strain. This means considering the loan's total cost, including interest and fees, to make an informed decision.

Here are some key factors to consider when calculating and understanding negative equity:

Understanding your equity position is key to evaluating whether trading in makes financial sense, so it's essential to calculate and consider your negative equity before making a decision.

Trading in a car with negative equity can be a tricky situation, but there are some options to consider. You have two main options: Delay the trade-in until you're not upside down on your loan or move forward with the trade-in and pay off the negative equity.

Delaying your trade-in is generally the better option financially, but it requires patience. You could either hold off your trade-in until you've saved up enough to pay off your loan, or pay extra on the loan until you're no longer upside down.

Making additional, principal-only loan payments or paying more than your monthly minimum could help you pay down your loan faster and reduce your negative equity. However, make sure the terms of your loan don't include a prepayment penalty, which can be a fee for paying off your loan earlier than expected.

Timing is crucial when trading in a car. Trading in too early often results in negative equity due to rapid depreciation, especially for new cars. This can lead to rolling over negative equity into new loans, increasing your financial burden.

To navigate this situation, it's essential to assess the extent of negative equity and evaluate your options carefully. You can determine the exact amount of negative equity by calculating the difference between your car's current market value and the remaining loan balance.

Some strategies to handle negative equity include paying off the deficit out-of-pocket before trading in the car, waiting until your equity turns positive by continuing to make regular loan payments, or exploring less expensive vehicle options to offset the negative equity.

Rolling over negative equity into a new loan can exacerbate your financial situation, leading to a higher loan amount, longer repayment terms, and increased interest costs. It's crucial to consider the long-term implications before deciding on this option.

Here are some key considerations to keep in mind:

Remember, trading in a car with negative equity requires a thoughtful approach to ensure you make the most financially sound decision. It's essential to weigh the costs and benefits carefully and explore all available options before moving forward.

You need to be aware of your car's equity when trading it in, especially if you have negative equity. Positive equity means your car is worth more than the loan balance.

If you're upside-down on your loan, or have negative equity, you'll owe more on your loan than your car is worth. This can make trading in your car a complicated process.

Prepayment penalties can be a significant issue when trading in a car with negative equity. These fees can add up quickly and make it harder to get out of a loan.

You should also consider the current value of your car, which is essential in determining your car's equity. This value can fluctuate over time and affect your trade-in options.

Trading in a car with negative equity can be a costly mistake if you're not careful. It's essential to understand the process and potential consequences before making a decision.

To accurately assess your car's value, you'll need to determine its current market value using reliable online tools or dealer evaluations.

This will give you a clear picture of how much your car is worth, which is essential for understanding your equity position.

Subtract your loan balance from this amount to calculate your equity, and be aware that prepayment penalties may be a factor in this calculation.

Positive equity can make the trade-in process easier, while negative equity requires careful financial planning.

To determine your equity, you'll need to know your loan balance and any prepayment penalties that may be associated with it.

By understanding your equity position, you'll be better equipped to evaluate whether trading in your car makes financial sense.

Your car's current value and loan balance are the two key factors in determining your equity, so make sure to get accurate information on both.

If you're upside down on your car loan, it's best to delay your trade-in if possible. Delaying your trade-in can give you time to pay off your negative equity upfront, which can save you money in the long run.

Consider buying a used car if you need a new car soon and a negative equity rollover is your only option. Borrowing as little as possible can help minimize the risk of negative equity.

As you explore your options, make sure to double-check that the loan term and monthly payment amount fit within your budget.

A longer loan term increases the risk of negative equity because the car will continue to depreciate. This can result in paying more in interest over the length of the loan.

Do your homework to choose the best solution for you, whether that's paying off your negative equity upfront or opting for a negative equity rollover.

If you're facing the challenge of trading in a car with negative equity, don't worry, there are alternative solutions to consider.

Selling your car privately can yield a higher price than a trade-in, potentially saving you money.

Refinancing your auto loan can also be a viable option, especially if your credit score has improved since the original loan, securing you a lower interest rate.

You could explore less expensive vehicle options to help offset the negative equity, by opting for a lower-priced car you can reduce the gap between your loan balance and the vehicle's value.

Alternatively, you can delay your trade-in until you're no longer upside down on your loan, either by saving up to pay off the loan or by making extra principal payments.

Here are some specific strategies to consider:

By carefully evaluating your options and considering the potential consequences, you can make an informed decision and find a solution that works for you.