Call to apply 800.391.4346

Call to apply 800.391.4346

What is negative equity and how can it affect my next car purchase?

If you find yourself in a negative equity situation - your car is worth less than the loan balance - you are not in an ideal position. It's called being "upside down" for good reason, and you need to be careful about how you handle it. The ramifications can be long-term if not handled with care.

Once you determine how much the vehicle is worth and compare it to your loan balance, the rest is up to you. If you're upside down, your next car loan is going to be negatively impacted in some way, so if you have your heart set on a new vehicle and the loan that goes along with it, some damage control is in order.

Obviously, improving your credit is a great place to start, and setting realistic expectations for the car you want and how much you can afford to pay are just as important. You don't want to perpetuate your upside-down situation any longer than you have to!

Did you know that in 2015, nearly one-third of car buyers who traded in their cars still owed money on their trade-in vehicles? But that doesn't make it OK to make this negative situation worse. Probably the best thing to do is call a City Lending loan counselor at 800-391-4346 and get some advice. Remember, when you get a new car loan and you're upside down, you will still have to pay off the amount you owe on your current car.

We want to help you explore all your options, but you may need to stick with your old car until you at least reach a break-even point in the loan, or better yet, pay it off outright. City Lending might be able to help you with that too.

Rolling Over Your Payments Into a New Loan

When you firmly decide to trade your vehicle in for a newer one, it's imperative that you understand how the dealer is handling the negative equity you're bringing to the table. Make sure everything you've discussed and agreed upon is included in the contract before you sign it.

Another option is to have the new lender pay off the loan by lowering the monthly payments. The bad news is, the term of the loan will likely become longer. You always want to try to keep the term as short as you can so the loan life doesn't exceed the life of the vehicle!

Dealer incentives can definitely help with either of these options, and through our nationwide network of dealer partners, we can help you find the best vehicle and match it with a price you can afford.


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