My clients often ask what they can do with the negative net worth of their car. I thought I would share my answer that I give them with you, in case the same question has arisen in your life. When you owe more than your car is worth, you are said to be upside on your car loan. Every new car pulled from the dealer lot automatically has an instantaneous negative value. Cars never increase in value, no matter how long you keep them.
You have several options for disposing of your car with less than perfect equity.
Distributors accept trades like this every day. However, you’ll want to take a close look at all the numbers and see if it makes financial sense for you to trade your vehicle to the dealer or not. You may find that you are better off keeping your car and paying for it.
If you have good credit, you may be in a position to purchase another vehicle and transfer your negative net worth to the vehicle you are purchasing. Note that negative equity did not magically disappear. He transferred it to another car loan. You still have to pay it.
One way to help get rid of less than perfect credit is to make a larger down payment on a new car you want to buy. By doing this, you will help eliminate some of the negative equity so you don’t have as much to transfer to your new loan. If you are looking for a new car, shop around and find one that has low or no interest repayment incentives. Some of the manufacturer rebates can help offset your negative equity.
If you’re like most people today, you don’t have a lot of cash and you struggle to get extra money. That is why it can be beneficial to seek manufacturer rebates.
Take a look at your potential interest rate. If you are paying a high interest rate on the car you have now, you may be able to save some money by transferring your negative net worth to a car with a lower interest rate.
Be careful about rolling your negative equity into a new car loan. This long-standing practice of refinancing negative equity has gotten many people into serious financial trouble. Ideally, you should always set up your car payments so that you can pay off the car faster than it is depreciating. Financing your car for 60 months or more only helps lenders.
If you find yourself with a negative equity in your car, it may be beneficial to speak with an auto broker to help you get out of your loan upside down. Auto brokers are known for working with people rather than just trying to sell them a car today.
