• Direct2Wheels

Negative equity explained

You might have heard of negative equity, but understanding what is exactly can be a little tricky.

Roughly, it’s the amount of money left owing on your trade that gets rolled into your next loan. Say you go to a dealer for a trade and they offer you $15,000 for your car which you still owe $20,000 for, what happens to the remaining $5,000? It gets transferred to your new loan: that’s your negative equity. That being said, the car you wanted for X amount of money might end up costing you an extra $5,000 you didn’t know of!

Being aware of your negative equity is very important when trading in for a new car. It might mean more or higher payments for the vehicle and sometimes, lenders/dealers might not disclose that negative equity and simply add it to your monthly payments without you noticing. Make sure the lender shows you all the details as to what they paid for your trade and ask about your negative equity so there are no bad surprises resulting in monthly payments you can't afford. A better understanding of your vehicle’s worth is essential for a better and more fun car shopping experience.

Still not quite clear? Let our expert Claire explain it to you in this video featured on our Facebook page and YouTube account!