Getting On The Right Side of Equity
At Floyd Chrysler Dodge Jeep Ram, we understand that as life changes, sometimes that means needing a different vehicle before your current loan is paid off. Maybe your family has grown, your job requires more travel, or you simply want to upgrade to a more fuel-efficient or capable vehicle. Yet, what happens when you owe more on your vehicle than it’s worth? In that case, you’re dealing with a negative equity trade-in, and while it can complicate things, it doesn’t mean you’re stuck. In this article, we’ll guide you through the process of trading a car with negative equity, what to expect, and how to make the most of the situation. Visit us today in Floyd, VA!
Understanding Negative Equity
Negative equity, often considered being “upside down” on your loan, occurs when your car’s market value is less than the balance remaining on your auto loan. For example, if you owe $20,000 on your vehicle, but it’s only worth $16,000, you have $4,000 in negative equity. This situation is more common than many people realize. Vehicles depreciate quickly, especially in the first year, and longer loan terms with small down payments can exacerbate the issue. While not ideal, a negative equity trade-in is possible with the right strategy and dealership support.
Evaluate Your Situation Honestly
Before beginning the process of a negative equity trade-in, it’s essential to understand your current financial situation clearly. Start by determining the exact payoff amount for your existing auto loan. You can get this figure from your lender, but make sure it includes any accrued fees or interest.
Next, find out your vehicle’s current trade-in value. You can use online tools like Kelley Blue Book or Edmunds, but keep in mind these are estimates. For a more accurate figure, visit Floyd CDJR for a free professional appraisal. Once you know both the payoff and the trade-in value, you can calculate how much negative equity you have.
For example, if your payoff is $25,000 and the car’s trade-in value is $20,000, you’re going to be $5,000 underwater. Understanding this number is crucial as you begin exploring the best way to trade in a car with negative equity.
Explore Your Options
When it comes to negative equity trade-ins, you have a range of options at your fingertips. The best option financially will depend on your budget, credit profile, and how much negative equity you’re dealing with. The most common route is to roll the negative equity into a new loan, meaning the remaining balance from your old loan is added to the loan for your new vehicle. Choosing a vehicle with incentives such as rebates or special financing can help offset the rolled-over amount.
For example, if you’re carrying $4,000 in negative equity but qualify for a $3,000 rebate on your new car, you’re effectively only rolling $1,000 into the new loan. This method works best if you’re moving into a vehicle with better value or favorable financing terms. Another strategy is making additional principal-only loan payments to help pay down the loan faster. The team at Floyd CDJR can help you identify models that make this strategy more manageable.
How Much Negative Equity Can I Roll Over?
How much negative equity you can roll over depends on your credit, the vehicle you’re buying, and the lender’s guidelines. There’s no strict cap, but lenders generally prefer the total loan amount not to exceed a certain percentage of the new vehicle’s value. That said, if you’re working with a reputable dealership like Floyd CDJR for your negative equity trade-in and have solid credit, there’s often flexibility. We work with a broad network of lenders, giving us options to structure deals that work for various financial situations. The key is to be up front and realistic about what you can afford monthly, and we’ll do the rest to help structure a deal that works for you.
Choosing the Right Vehicle
Consider moving into a less expensive or more fuel-efficient vehicle. It might be time to consider other options if you owe more on your old car loan than the vehicle’s value. If you want to regain financial stability, downsizing might be the most brilliant move. At Floyd CDJR, many of our new Chrysler, Dodge, Jeep, and Ram models come with special offers that can help reduce the financial impact of your negative equity trade-in. Our team can walk you through different vehicle options and help you find the best fit based on your budget and lifestyle.
Consider Making a Cash Payment
Making a cash payment to cover part, or all, of the negative equity can be beneficial. While not everyone can afford this, putting even a few thousand dollars down can reduce the size of your new loan and improve your overall financial position. You may need to pay off the difference out of your own pocket to reduce the size of your new loan. Even if you can’t cover the full difference, paying down some of the negative equity can help you get out of it more quickly. It also lowers your monthly payment, which can free up room in your budget for other financial goals.
Handle Negative Equity Like A Pro
Negative equity trade-ins might seem like a roadblock, but it can be a manageable process with the right information and support. At Floyd CDJR, we’re committed to helping you move forward, whether that’s into a new Chrysler Pacifica for your growing family, a rugged Jeep Wrangler for weekend adventures, or a dependable Ram 1500 for the job site. Whatever your needs, we’ll work with you to find a sensible financing solution. If, after reading this article, you’re still wondering how to trade in a car with negative equity, visit us in Floyd, VA. Let’s build the road to your next ride together.
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