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Auto Loan Negative Equity Calculator

Reviewed by Calculator Editorial Team

Determine if your auto loan is in negative equity with this calculator. Negative equity occurs when the value of your car is less than the remaining balance on your loan. This situation can lead to financial losses if you decide to sell or trade in your vehicle.

What is Negative Equity?

Negative equity in an auto loan means that the current market value of your vehicle is less than the remaining balance owed on your loan. This situation typically arises when:

  • The value of your car has depreciated significantly
  • You've made only minimum payments on your loan
  • You've been driving a high-maintenance vehicle
  • You've been driving more miles than recommended

Negative equity is different from being underwater on your mortgage, though both situations can lead to financial difficulties. With an auto loan, negative equity means you could lose money if you sell or trade in your vehicle.

How to Calculate Negative Equity

The formula for calculating negative equity is straightforward:

Negative Equity Formula

Negative Equity = Loan Balance - Current Vehicle Value

If the result is a positive number, you have negative equity. If the result is zero or negative, you don't have negative equity.

To calculate negative equity, you'll need to know:

  1. Your current loan balance
  2. The current market value of your vehicle

You can find your loan balance on your monthly statements. The current vehicle value can be estimated using resources like Kelley Blue Book, Edmunds, or your local dealership's trade-in value.

Example Calculation

Let's say you have a $20,000 auto loan and your car is currently worth $15,000. Here's how to calculate your negative equity:

Example Calculation

Negative Equity = $20,000 - $15,000 = $5,000

In this example, you have $5,000 in negative equity. This means if you sell or trade in your vehicle, you would lose $5,000 compared to what you owe on your loan.

What Does Negative Equity Mean?

Negative equity has several important implications:

  1. Financial Loss: If you sell or trade in your vehicle, you'll lose money equal to the negative equity amount.
  2. Difficulty Selling: Dealers may be less willing to accept your car as payment on a new vehicle.
  3. Loan Modifications: Lenders may offer loan modifications to help you avoid negative equity.
  4. Insurance Impact: Your car insurance premiums may increase if your vehicle's value is low.

It's important to monitor your negative equity regularly, especially if you're planning to sell or trade in your vehicle soon.

How to Avoid Negative Equity

There are several strategies to help you avoid negative equity:

  1. Pay Extra Principal: Making extra payments towards your principal can reduce your loan balance faster.
  2. Maintain Your Vehicle: Regular maintenance can help keep your car's value higher.
  3. Drive Less: Driving fewer miles per year can help maintain your car's value.
  4. Refinance: If interest rates are lower, refinancing can reduce your monthly payments.
  5. Consider a Loan Modification: Contact your lender to discuss options for reducing your loan balance.

Important Note

While these strategies can help, negative equity is often unavoidable for older vehicles. If you're in negative equity, consider whether selling or trading in your vehicle makes financial sense for your situation.

FAQ

What is the difference between negative equity and being underwater on a mortgage?

Negative equity in an auto loan means your car's value is less than your loan balance. Being underwater on a mortgage means your home's value is less than your mortgage balance. Both situations can lead to financial difficulties, but they affect different assets.

Can I still drive my car if I have negative equity?

Yes, you can continue driving your car even if you have negative equity. Negative equity only becomes a problem if you try to sell or trade in your vehicle.

How does negative equity affect my credit score?

Negative equity itself doesn't directly affect your credit score. However, if you miss payments or default on your loan, it could negatively impact your credit score.

Can I refinance to get out of negative equity?

Refinancing might help if you can secure a lower interest rate or better terms, but it won't directly eliminate negative equity. You'd still need to pay down your loan balance to reduce negative equity.