Having a negative equity in the value of your car means you owe more than the current worth of your car. Most people in this kind of situation usually think they can’t trade in their car but the fact is that there are still several options available to trade in your car to a rent to own even with negative equity. All that is needed to be done to achieve this is to weigh the options available to you; we will be highlighting a few of these possible options in the sections below.
Check how much Negative Equity You Have: The first thing to do is to know how much negative you have. You can find out this by logging into your loan account or by contacting your lender to ask for the payoff amount on your current loan. Afterwards, you can check the trade-in value of your car and compare it with the payoff amount to know the difference. For example, if you have a car that is worth ,000 and you owe ,000, you will have a negative equity balance of ,000 that will have to be rolled over into any new financing you wish to secure.
Roll Over your Negative Equity: Your negative equity occurs when the amount you owe is more than the current value of your car. The negative equity is rolled into the loan for your new car. What this means is that you will be paying off your former car with the loan on your new car with interest at the same time in one larger loan. This kind of loan can increase your financing costs and attaining a positive equity becomes more difficult as a result of this, you need to give it a deep thought before applying for a new car loan with a negative equity.
Go for a Cheaper Car: Buying a cheaper car will help you reduce the loan amount. As a result of this, it is better to go for a used car instead of a new car because the used car will be cheaper compared to a new car. If you purchase a used car you can easily offset the effect of depreciation.
Go for a Suitable Loan: With a negative equity you will be borrowing more and what this means is that you might be forced to go for a low monthly payment which will in turn elongate the loan duration. This will only prolong the time you need to build a positive equity, depending on the interest rate and other charges you might even be paying more in the long run. On the other hand, a shorter loan with same interest rate will mean you will be paying more monthly and you can pay off the loan faster. Hence, you have to put all these into considerations to know which loan term will best suit your situation.
Get Preapproved: Apply to get a financing before you visit the dealership, this will help you to save time and work within your budget when you shop for a new car. It's advised you avoid high-interest rate lenders like buy here pay here dealerships and do you research!
All these options can go a long way to help cushion the effect of a negative equity when you wish to trade-in your car. Other options you may wish to consider include paying off negative equity, and refinancing among others.