Am I Underwater on My Car Loan?
Find out if you owe more than your vehicle is worth, what happens if you trade in now, and when your equity turns positive.
Your Current Loan
Enter the details of your existing auto loan and your vehicle's current estimated value.
Where you stand on the loan
Enter your loan balance and current vehicle value to see whether you have equity, are at break-even, or are upside-down going into your next deal.
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Straight Answers
Negative equity means you owe more on your car loan than the vehicle is currently worth. This is also called being underwater or upside down on your loan. It commonly happens when you finance with a small down payment, take a long loan term, or the vehicle depreciates faster than you pay down the balance.
When you trade in a vehicle with negative equity, the dealer rolls the difference into your new loan. If you owe $20,000 but your trade-in is worth $15,000, that $5,000 gap gets added to the new loan amount plus HST on the new vehicle. This increases your monthly payment and total interest cost.
The most straightforward option is to keep making payments until your balance drops below the vehicle value. You can accelerate this with extra principal payments. Selling privately instead of trading in can also help since private sale values are typically higher than dealer trade-in offers.
Most Canadian lenders allow up to 125% to 140% loan-to-value on a new vehicle purchase, meaning they will finance some negative equity. That said, just because a lender allows it does not mean it is a good financial decision. Rolling negative equity into a new loan increases your payment, total interest, and puts you underwater on the new vehicle immediately.
In most cases, waiting is the financially better option. Every month of payments reduces your balance while you avoid rolling negative equity into a more expensive loan. The exception is if your current vehicle has major mechanical issues costing more to repair than the negative equity amount. A Holdback consultation can help you evaluate the full picture.
Underwater? Let Us Help You Figure Out the Best Move.
A Holdback consultation reviews your current loan, trade-in value, and new deal to make sure negative equity does not cost you more than it has to.
Questions? Email hello@holdback.ca
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