How can you trade a car that is worth less than the balance of the loan?

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You got it. They do it all the time. It's called being "upside down" and it probably isn't a smart financial move. But, hey, it's your money/life.

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Can happen to anybody... We just did the same thing. High milage Expedition, expecting a lot of repairs and tires in the next 12 months. It was worth $2500 less than our loan - big SUV's not so popular now that a tank of gas is $60+. So traded it on a smaller, new car - the monthly loan bills are higher, but will be made up in repair & fuel savings, plus we feel more sanctimonious about having a "green" car.

Just to be clear: the new loan is for the full price of the new car, made up of pay-off of the old loan + the difference in price between trade-in given and new car price. We put 0 money down - if you have cash that of course lowers the loan amount. Depends on how you calcualte your personal NPV

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It's something that most people deal with when trading in vehicles. But on your situation, you currently owe 3 times more on a car that has 100k on it. Wouldn't it be better to owe 2 times as much on a new vehicle?

Look for a car with the largest rebates and try to find a dealer demo with some miles.

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Most people are upside down in their cars. You should buy a car that you're going to be happy with for the duration of your loan. Or you could at least make sure that you're going to like it until you can break even.

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In the early to mid-90s with the price of new cars/SUVS extending beyond the amount most people could afford to repay through monthly installments, extended-term financing became the norm. Seventy-two, eighty-four and even ninety-six month financing came into being. Additionally, residual-based financing was presented as a viable alternative to the higher-than-affordable/financable monthly payments of " conventional " financing methods(48,60,72,84months, etc.).

Nothing you can buy( with the possible exception of a new boat ) depreciates as quickly as a new car/truck/SUV. Combine this fact with ANY scheme to extend/defer the repayment of the financing contract and (assuming you're not going to make a significant downpayment )you've got negative equity for sure.

Trading down is not always a viable alternative so be prepared to ride the loan to at least mid-point before you try and trade-and ALWAYS buy gap insurance.

-David

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One thing to keep in mind is a lease, most new cars are allowed to finance more than the new car is worth I.E. our dealership can finance 115% of the new cars MSRP note that you can by a car well below MSRP there for hiding your neg balance keep in mind this is carried over into the next loan so you dont get out of it only refinance it

First answer by gerodmo. Last edit by Sttam. Contributor trust: 155 [recommend contributor]. Question popularity: 220 [recommend question]

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