How to trade in a car with negative equity

Couple talking to dealer about trading in with negative equity

When you owe more than your vehicle is worth but still intend to trade in – and plenty of people do – then planning your next steps will help you to get the most out of the deal.*

Learn how you can approach it, below.

Rolling over your negative equity

In this situation, it’s common for negative equity to be rolled into financing for the new vehicle. That means you’ll effectively be paying off your previous car along with your new one with a larger financing amount on which you’ll pay interest.

Such an arrangement can increase your borrowing costs and make it harder to reach positive equity, so give this some serious thought. However, if you need or still want to trade in your vehicle, there are a number of steps that can mitigate these effects and keep your expenses down.

1. Check how much negative equity you have

First of all, you’ll want to know just how much negative equity you’ve got. Log into your account or contact your lender to get the payoff amount on your current contract. Then look up the trade-in value of your vehicle at sources like NADA GuidesEdmunds and Kelley Blue Book and compare it to the payoff to see the difference. If your vehicle is worth $10,000 yet you still owe $15,000, that’s $5,000 in negative equity that could be rolled over into your new financing.

2. Consider a cheaper vehicle

One way to reduce the size and cost of the new debt is to simply buy a less expensive vehicle. You could also go for a used model to offset the effects of depreciation. Depreciation – the reduction in a vehicle’s value over time – is something that could increase the “upside down” problem you encountered previously. New vehicles depreciate by 20 percent in their first year and by about 50 percent after year three, so even buying a nearly new car could help you reach positive equity more quickly.

3. Choose a suitable financing period

When rolling over debt, it’s tempting to opt for a contract that’s on the longer side to keep monthly payments down. Be aware that this route will typically take you longer to build up equity in the vehicle and, depending on your annual percentage rate (APR), the accumulated finance charges mean you could pay more for your vehicle overall. A shorter contract with the same APR will increase the monthly payment but speed up the rate at which you can gain equity and pay off the vehicle completely.

4. Estimate your financing

Auto finance calculators will enable you to see what the best terms for your situation may look like. Use a monthly payment calculator to enter a total financing amount, which could include the negative equity you’ll be rolling over, along with a financing duration and APR to gauge what might be affordable. Adjust the duration and APR to see how the payment changes.

5. Get approved before visiting the dealer

Consider applying for financing before you go to the dealership to save time and help yourself stay within budget. Chrysler Capital makes the process easy with a short application and instant decisions. Approved applicants can then visit an FCA US dealer nearby with their offer amount in hand. Once at the dealership, the staff will help you select a great car, truck or SUV, and work with us to finalize the financing.

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Alternatives to trading in with negative equity

Trading in a vehicle with negative equity may be commonplace but there are other options which may save you money. Think about these as well.

Pay off the negative equity

If your finances allow, an easy option is to simply pay off the negative equity – whether as a lump sum or by adding to your monthly payments. Most auto financing is structured using the simple interest method in which extra payments go only toward the principal financing amount and not interest.


Refinancing with new terms, such as a shorter duration and lower APR, is another way to accelerate the journey to positive equity.

Keep the vehicle and wait

If it’s serving you well, you could just hang on to your car, keep making your regular payments and wait until it’s all paid back before purchasing another.

Next steps

Having gained a better grasp of how to tackle your negative equity, you can now make a decision and go ahead with confidence. If you’re planning to trade in, apply for financing with Chrysler Capital and get response in seconds.

*These statements are informational only and should not be construed as legal, accounting or professional advice, nor are they intended as a substitute for legal or professional guidance. Chrysler Capital is not a credit counseling service and makes no representations about the responsible use of consumer credit.