1. What is Negative Equity?

Negative equity occurs when the outstanding loan amount for a vehicle exceeds its current market value. This situation is common when a car depreciates faster than the loan is paid down.

2. How Does the Calculator Work?

The calculator uses the negative equity formula:

Where:

• Outstanding Loan — Remaining balance on your auto loan
• Vehicle Value — Current market value of your car

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

3. Importance of Negative Equity Calculation

Details: Understanding negative equity is crucial when trading in or selling a vehicle, as it affects your financial position and may require rolling over debt into a new loan.

4. Using the Calculator

Tips: Enter the current payoff amount for your loan and the fair market value of your vehicle. Both values should be in USD and greater than zero.

5. Frequently Asked Questions (FAQ)

Q1: How does negative equity occur?
A: It typically happens when a car depreciates rapidly, the loan term is long, or the buyer made a small down payment.

Q2: What should I do if I have negative equity?
A: Options include paying the difference, keeping the car longer, or refinancing (though this may extend your loan term).

Q3: How accurate should the vehicle value be?
A: Use reputable sources like Kelley Blue Book or NADA Guides for the most accurate current market value.

Q4: Does negative equity affect insurance?
A: While it doesn't directly affect premiums, you may want to consider gap insurance if you have negative equity.

Q5: Can I trade in a car with negative equity?
A: Yes, but the negative amount will typically be added to your new loan, increasing your debt.