What negative equity means
Equity is the car's value minus what you owe on it. If you owe more than the car is worth, your equity is negative. People also call this being underwater or upside down on the loan.
Why it happens
- New cars lose value fastest in the first year, often faster than the loan balance falls.
- A small down payment or a long loan term keeps the balance high for longer.
- Rolling an old loan's balance into a new loan starts you underwater on day one.
How this calculator works
It finds your regular payment from the balance, APR, and months left, then tracks the loan balance month by month. The car's value falls by the yearly percentage you enter. Break-even is the first month when the car's value is at least the loan balance. The value is an estimate, so treat the result as a guide and check your car's real value with a pricing guide or dealer offers.
What to do if you are underwater
- Keep making payments. The balance falls every month while the value falls more slowly as the car ages.
- Pay extra toward the principal. The pay off early calculator shows how much that speeds up break-even.
- Avoid trading in until you reach break-even. A trade-in with negative equity adds the gap to your next loan.
- Ask whether GAP coverage makes sense. It can cover the difference between what you owe and what insurance pays if the car is totaled.
- Look at a lower rate with the refinance calculator, though lenders may limit loans on cars worth less than the balance.
Frequently asked questions
Is it bad to trade in a car with negative equity?
It usually means a larger next loan, since the gap is rolled into it. That makes the new loan more likely to be underwater too. Waiting until break-even, or paying the gap in cash, avoids that.
How do I find my car's value?
Use a used car pricing guide such as Kelley Blue Book or Edmunds, and compare with offers from dealers or online car buyers. Use the trade-in value if you plan to trade it in.
How do I find my loan balance?
Ask your lender for the payoff amount, or check your online account. The payoff amount can be a little higher than the balance on your statement because of interest that builds up between payments.
What is GAP insurance?
Guaranteed asset protection, or GAP, coverage pays the difference between the car's value and your loan balance if the car is totaled or stolen. It is optional and costs extra, so compare prices from your insurer and the dealer.