1. What is Negative Equity?

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

2. How Negative Equity is Calculated

The calculator uses the simple formula:

Where:

• Outstanding Loan — The remaining balance on your auto loan
• Vehicle Value — The current market value of your vehicle

Explanation: A positive result indicates negative equity (you owe more than the vehicle is worth), while a negative result means you have positive equity in the vehicle.

3. Importance of Negative Equity Calculation

Details: Knowing your negative equity is crucial when considering trading in or selling your vehicle, as it affects your ability to finance a new vehicle and may require rolling the negative equity into a new loan.

4. Using the Calculator

Tips: For accurate results, use the exact payoff amount for your loan and the most current market value of your vehicle (from sources like Kelley Blue Book or NADA Guides).

5. Frequently Asked Questions (FAQ)

Q1: How does negative equity occur?
A: It typically happens when a vehicle depreciates rapidly, when a loan has a long term, or when little money was put down initially.

Q2: What can I do about negative equity?
A: Options include paying the difference, keeping the vehicle longer, or rolling the negative equity into a new loan (though this is generally not recommended).

Q3: Does gap insurance cover negative equity?
A: Standard gap insurance covers the difference between insurance payout and loan balance after a total loss, but not negative equity in trade-ins.

Q4: How can I avoid negative equity?
A: Make a substantial down payment, choose shorter loan terms, and select vehicles with slower depreciation rates.

Q5: Is negative equity tax deductible?
A: Generally no, unless it's related to business use of the vehicle (consult a tax professional for specific advice).