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Negative Equity Formula:
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Negative equity occurs when the outstanding balance on your auto loan exceeds the current value of your vehicle. This situation is also commonly referred to as being "upside-down" or "underwater" on your car loan.
The calculator uses the simple formula:
Where:
Explanation: A positive result indicates negative equity (you owe more than the car is worth), while a negative result means you have positive equity in the vehicle.
Details: Negative equity can complicate selling or trading in your vehicle, as you'll need to cover the difference between the loan balance and the vehicle's value. It may also affect your ability to refinance the loan.
Tips: Enter your current loan balance and the estimated market value of your vehicle. Both values should be in USD. For most accurate results, get an official appraisal of your vehicle's current value.
Q1: How common is negative equity in auto loans?
A: It's relatively common, especially in the first few years of a loan when depreciation is highest, or with long loan terms (72+ months).
Q2: What causes negative equity?
A: Rapid vehicle depreciation, long loan terms, small down payments, or high-interest loans can all contribute to negative equity.
Q3: How can I get out of negative equity?
A: Options include making extra payments, waiting for the loan to amortize, gap insurance (for totaled vehicles), or refinancing if possible.
Q4: Should I trade in a car with negative equity?
A: This often rolls the negative equity into a new loan, increasing your debt. It's generally better to pay down the balance first.
Q5: Does negative equity affect insurance?
A: It doesn't affect premiums, but gap insurance can protect you if the car is totaled while you have negative equity.