1. What is Negative Equity?

Negative equity occurs when the outstanding balance on your auto loan exceeds the current trade-in value of your vehicle. This situation is common when vehicles depreciate faster than the loan balance decreases.

2. How Does the Calculator Work?

The calculator uses the simple formula:

Where:

• Outstanding Loan — Remaining balance on your auto loan
• Trade Value — Current market value of your vehicle

Explanation: A positive result indicates negative equity (you owe more than the car is worth), while a negative result means you have positive equity.

3. Importance of Negative Equity Calculation

Details: Understanding your negative equity is crucial when trading in or selling your vehicle, as it affects your ability to finance a new car and may require rolling over the negative amount into a new loan.

4. Using the Calculator

Tips: Enter your current loan balance and the estimated trade-in value of your vehicle. Both values should be in USD. For accurate results, use your most recent loan statement and a professional vehicle appraisal.

5. Frequently Asked Questions (FAQ)

Q1: How common is negative equity in auto loans?
A: Negative equity is quite common, especially in the first few years of a loan when depreciation is highest and loan balances are still large.

Q2: What should I do if I have negative equity?
A: Options include paying the difference out of pocket, rolling it into a new loan (not always recommended), or keeping the vehicle longer until you reach positive equity.

Q3: How can I avoid negative equity?
A: Make a larger down payment, choose shorter loan terms, or select vehicles that depreciate more slowly.

Q4: Does negative equity affect my credit score?
A: Not directly, but it may impact your ability to secure favorable terms on future auto loans.

Q5: Can I refinance with negative equity?
A: It's challenging but sometimes possible through specialized lenders, though you may need gap insurance.