How Does Negative Equity Affect My Used Car Purchase?

Posted on May 11, 2018

You financed a car not that long ago and you find yourself shopping for a vehicle again. It happens for various reasons. Maybe you bought a sports car and you suddenly have a baby on the way. Or maybe after a surgery you need higher vehicle seating to get in and out. It could even be that your car just isn’t performing to your expectations. But buying a different car is going to be difficult because you have negative equity.

What is Negative Equity?

Everyone knows that cars depreciate in value as soon as you buy them. They don’t increase in value, and they normally depreciate the most in the first couple years of ownership. If you’ve financed most or all of your car purchase, you’ll likely find yourself with negative equity for the first couple of years. Negative equity is when your vehicle is worth less than the amount you still owe on your financing term. It could be thousands of dollars, and that can feel unsurmountable when you need to switch vehicles again.

It Doesn’t Prevent a Used Car Purchase

Just because you have negative equity in your current car doesn’t mean you can’t change it up. You will need to take it into consideration when you’re buying a different vehicle, though, because the negative equity needs to be paid. Most lenders will allow a small portion to be added to a loan above the vehicle cost. In many cases, negative equity can be tucked in there. You continue to pay it, but you’ll have a vehicle that fits your needs.

A Few Tips

To buy a different car when you have negative equity, there are a few things you can do to help.

Buy a Newer Used Car

Choose a car that’s only a year or two old – the lender will see the best value in a newer used car.

Make a Down Payment

If you can swing it, put money down on your vehicle purchase to offset some of the negative equity.

Choose a Car You’ll Keep

Pick a model that’s flexible enough to accommodate life changes. An SUV or a minivan are great options. At Jay Wolfe Auto Outlet, we can help. If you have negative equity but need a different vehicle, our sales and financing professionals will make it happen!