1. What is Negative Equity in Auto Loans?

Negative equity occurs when the outstanding balance on your auto loan exceeds the current market value of your vehicle. This situation is also commonly referred to as being "upside-down" or "underwater" on your car loan.

2. How Does the Calculator Work?

The calculator uses the negative equity formula:

Where:

• \( \text{Outstanding Loan} \) — Remaining balance on your auto loan (USD)
• \( \text{Vehicle Value} \) — Current market value of your vehicle (USD)

Explanation: The calculation shows how much more you owe on your loan compared to what your vehicle is currently worth.

3. Importance of Negative Equity Calculation

Details: Understanding negative equity is crucial when considering trading in or selling your vehicle, as it affects your financial options and potential trade-in deals.

4. Using the Calculator

Tips: Enter your current loan balance and the estimated market value of your vehicle. Both values must be positive numbers in USD.

5. Frequently Asked Questions (FAQ)

Q1: How does negative equity occur?
A: Negative equity typically happens due to rapid vehicle depreciation, long loan terms, or small down payments.

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

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 gap insurance help with negative equity?
A: Gap insurance covers the difference between what you owe and the car's value if it's totaled or stolen, but doesn't help with voluntary sales or trade-ins.

Q5: How accurate should the vehicle value be?
A: For best results, use recent appraisal values or reliable sources like Kelley Blue Book or NADA Guides.