1. What is Negative Equity?

Negative equity occurs when the outstanding loan balance on a vehicle exceeds its current trade-in value. This situation is common when a vehicle depreciates faster than the loan is paid down.

2. How Does the Calculator Work?

The calculator uses the negative equity equation:

Where:

• Outstanding Loan — The remaining balance on your auto loan (USD)
• Trade In Value — The current market value of your vehicle (USD)

Explanation: The equation calculates the difference between what you owe and what your vehicle is worth. A positive result indicates negative equity.

3. Importance of Negative Equity Calculation

Details: Understanding negative equity is crucial when trading in a vehicle, as it affects your ability to finance a new vehicle and may require rolling over the negative equity 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 must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What causes negative equity?
A: Negative equity typically occurs when a vehicle depreciates faster than the loan is paid down, often due to long loan terms, high interest rates, or minimal down payments.

Q2: How can I avoid negative equity?
A: Make a larger down payment, choose shorter loan terms, or consider vehicles that hold their value better.

Q3: 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 recommended), or waiting until you've paid down more of the loan.

Q4: Does negative equity affect my credit score?
A: Not directly, but it may affect your ability to secure favorable loan terms for your next vehicle.

Q5: Can I trade in a car with negative equity?
A: Yes, but dealers will typically require you to pay the difference or roll it into your new loan, which increases your new loan amount.