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What is negative equity on a car?

Negative equity means you owe more on your car loan than the vehicle is worth. You find it by subtracting what you owe from the vehicle's value: a negative result means you owe more than it is worth.

Action level Worth checking

Why you are seeing it
It comes up when you think about trading in or selling a car that you are still paying off, and in articles about car loans.
Why it matters
If you owe more than the car is worth, selling or trading it does not cover the loan, and any difference you roll into a new loan adds to what you borrow.
What should I do?
  • Find your payoff amount from your lender and an estimate of the car's value.
  • Subtract the payoff from the value to see whether you have equity or negative equity.
  • If it is negative, look at the effect on a new loan before you trade the car in.
A common misunderstanding
A trade-in does not make the negative equity go away: the amount you owe beyond the car's value is still owed, and it may be added to the next loan.

What it means

Equity is what a vehicle is worth minus what you still owe on it. When the car is worth more than the loan, the difference is positive equity. When you owe more than the vehicle is worth, the difference is negative, which is negative equity. The CFPB lists "you owe more than your vehicle is worth" as a common issue for people with auto loans.

A simple example

Owing more than it is worth

A car is worth $8,000 and you owe $10,000 on it.

$8,000 - $10,000 = -$2,000, so you have $2,000 of negative equity.

If you rolled that into the loan on a $30,000 car with nothing down, you would owe $32,000, before tax and fees. The numbers are an example.

Why it matters when you trade in

A trade does not erase the amount you still owe. If you trade the car in while you owe more than it is worth and the difference is rolled into the next loan, it is added to what you borrow, so the new loan is larger than the new car's price. The Trade-In Equity Calculator shows the effect before tax and fees.

Try these tools

  • Trade-In Equity CalculatorEnter your trade-in value and what you owe to see your equity, or negative equity, and what is left to pay on a new car before tax and fees.
  • Car Loan CalculatorWork out the monthly payment, total interest and total cost of a car loan with down payment, trade-in, tax and fees.

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