My Trade-In Has Negative Equity, Can I Still Use it as a Down Payment?

Just because your trade-in has negative equity – meaning that it’s worth less than what you owe on its loan – doesn’t mean you can’t trade it in and use it as a down payment on a bad credit auto loan. Some lenders let you roll over the negative equity into the new loan, but the long-term negative consequences this creates are best avoided. If you can, you should eliminate any negative equity ahead of time.

Options for Trading In a Car with Negative Equity

Before we tell you how to eliminate negative equity, you should know what your options are when it comes to trading in a vehicle that’s upside down. What your options are depend on the lender and what they allow. However, you generally have three to consider:

  1. My Trade-In Has Negative Equity, Can I Still Use it as a Down Payment?Roll it over – If the lender allows it, you could roll over the negative balance into the new car loan. Keep in mind that doing this doesn’t get rid of the negative equity – it's just added into the new loan balance. This means you're essentially paying on two loans at once, which results in a higher monthly payment and increased interest charges.
  2. Pay the difference – Another option is to simply pay the difference in cash. To see how much you need to pay, make sure you get a loan payoff from your current lender, and have the vehicle appraised at a dealership. Subtract the appraised value from what you owe, and that amount is how much you need to pay.
  3. Wait it out – If neither of the two options above are possible at the moment, you need to wait until you have equity.

How to Get Rid of Negative Equity

If you’re stuck with the option to wait until there’s equity, how do you get rid of it quickly? Depending on how upside down you are in the loan, it could take a while. If you’re looking for some advice on how to reduce negative equity in a timely manner, consider these two tips:

  1. Sell the car privately – When you sell a vehicle privately, you get the chance to get more for it than a dealer is willing to offer you. In turn, this gives you the chance to sell the car and eliminate or reduce the negative equity.
  2. Pay more when you can – If you can pay more each month, this can help you pay off the loan faster. Simply rounding up the payment helps, but if you can’t set aside anything more each month, paying anything extra when you can helps.

The Bottom Line

If you can, you should eliminate any negative equity before you head to a dealership to trade in your current vehicle. If you need help selling your car, our trusted partner can assist you.

If you’re unable to wait and you need a bad credit auto loan, we can help you find a dealership to assist you. At The Car Connection, we work with a nationwide network of dealerships that have the lending resources available to help car buyers with bad, little, or no credit.

Get started today by filling out our free auto loan request form. After you do, we’ll get right to work connecting you with a local dealer.


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