How to use the negative equity calculator
- Enter your loan payoff amount, which you can get from your lender, and the value a dealer or buyer would pay for the car today.
- Read your equity. A negative figure means you owe more than the car is worth.
- To see what rolling that amount into a new loan does, open the advanced options and enter the price of the next vehicle, your cash down, sales tax, rate and term.
- Compare the new payment with the payment you would have without the rolled in debt.
Formula
Equity = vehicle value - loan payoff
New loan = price + sales tax + negative equity - cash down
Payment = new loan x r / (1 - (1 + r)^-n), with r the monthly rate and n the months
With positive equity, the equity is subtracted from the new loan instead of added to it. Payments are rounded to the cent.
Worked example
You owe $24,000 on a car worth $18,500, so equity is -$5,500. You want a $32,000 vehicle with 6% sales tax ($1,920) and $2,000 down.
The new loan is $32,000 + $1,920 + $5,500 - $2,000 = $37,420. At 8% for 60 months the payment is $758.74, against $647.22 with no rolled in debt, so the old shortfall adds $111.52 a month and $8,104.60 in total interest.
How negative equity happens
A car loses value fastest in its first years, and a small down payment, a long term or financed fees can leave the balance above the value. The gap between the two is negative equity, sometimes called being upside down. See what depreciation does over time with the car depreciation calculator.
Ways to handle it
You can keep the car and keep paying until the balance drops below the value, pay the difference in cash when you sell, or roll it into a new loan. Rolling it over raises the new loan above the vehicle's price, which can put you underwater again immediately. A larger down payment or a shorter term limits that.
Check the payoff and the value
Use the payoff figure from your lender, which includes interest through a given date, not the statement balance. For value, compare a dealer offer with private sale listings, since trade-in offers are usually lower. Then see what a new payment fits with the car affordability calculator and the car payment calculator.
Assumptions and limits
- Payoff, value, tax and rate are inputs. Dealer offers, add-ons, fees and rebates are not modeled.
- Sales tax is applied to the full price of the next vehicle. Some states tax only the price after the trade-in, which would lower the loan.
- The payment uses the standard fixed rate formula with monthly compounding.
- Gap insurance, lender rules on how much can be financed and credit approval are not modeled.
Frequently asked questions
What does it mean to be upside down on a car loan?
It means you owe more than the car is worth. If you sold it today, the sale would not cover the loan and you would owe the difference.
Can I trade in a car with negative equity?
Often yes, if a lender agrees to finance the shortfall, but the unpaid amount is added to your next loan. That raises the payment and the interest you pay.
How can I get out of negative equity?
Pay extra toward principal, make a larger down payment next time, choose a shorter term, or wait. Each month of payments lowers the balance while the value falls more slowly.
Does gap insurance fix negative equity?
It can cover the difference if the car is totaled or stolen, but it does not help when you simply trade in or sell. Check what your policy covers.