What is negative equity and why you should care

If you're shopping for a new, used, or certified pre-owned vehicle and you have a trade-in, you should know about negative equity. Knowing what it is and how to deal with it can help you make a smarter buying decision.

What negative equity is
Negative equity, also referred to as being “upside down” or “underwater”, means you owe more for your vehicle than what its current value or market worth is. Why this is a scary proposition is that in order to sell or trade your vehicle in, you're likely not going to be able to get a high enough offer to pay off your loan and get the new (or newer) vehicle you want.

Real-world numbers
Let's say you bought a 2017 Chevy Camaro a few years ago. Maybe you had a credit challenge and had to get a loan with a higher interest rate. Because of that, the bank is going to use the payments you make to cover the cost of interest BEFORE they cover the cost of the principle (amount you paid for the vehicle less the interest cost). In our example, let's say you paid $39,000 for your Camaro. Now, 2 years later, your balance on your loan has only decreased by $9000 and you still owe $30,000. You’d like to trade in your Camaro now, but you learn that the average selling price of a 2017 Camaro is $20,000. That means you owe $10,000 more than the vehicle is worth. Admittedly, this seems like a pretty bleak situation to be in. There are solutions to this problem, but the right solution will be different for every person's unique circumstances.

You may feel that you have to come up with a huge chunk of money to pay off your loan so that you can sell your Camaro and pay off your loan. Let's face it...no one wants to be paying on a car they don't have anymore, and the bank or lending institution won't even release the car's title to you so that you can sell it unless the loan is paid in full. Or, you may think that your only option is to keep paying on the car for the next several years until it's paid off.

At SVG Motors, our finance managers are skilled at helping you navigate this situation, and will be able to offer you solutions to deal with negative equity. If you're determined to get a new (or newer) vehicle, your first step is to get pre-approved. You can even get an estimate of your vehicle's value here. Then you can call our specialists at 937-548-7643 and they'll walk you through the best options available so that you can get the new ride you really want without stressing over your negative equity.