4315 North Service Road, Burlington, ON, L7L 4X7
My Garage

How to find out if your car has negative equity

How to find out if your car has negative equity

With the current situation, many people are having to take a long hard look at their finances and maybe deciding what has to go in order to survive. Of all the assets we have, our cars offer the best option for generating enough money to see us through. If you have a loan on that car, how can you tell whether you can make money or have negative equity?

If your car is paid for, anything you get from the sale is yours to keep. If you have a car loan, that loan will have to be settled in full when you sell. Whatever is left over from that settlement is yours to keep. That’s great if you have paid off a significant portion of the loan, but what if you haven’t?

Car loans and equity

Equity is the term used to describe value within something an asset. In the context of a car, that would be the amount the car is worth over and above the loan amount. For example, say your car is worth $8,000 and you have $5,000 of a car loan still outstanding. Your equity would be $3,000, the amount left over from the sale once you pay the loan off.

Negative equity is when an asset, your car, is worth less than the loan secure on it. If your car has depreciated a lot and you have only just secured the loan, the outstanding amount on the loan may actually be more than the car is worth.

Calculating car equity

Calculating car values is an inexact science but you can get a good idea of how much your car is worth by using Kelley Blue Book. It is American but also has a presence in Canada. Car Nation Canada will also be able to offer a valuation on your car once we are open again.

Look up your make, model and colour, add mileage and you should see roughly how much it is worth. You should see two values, a trade-in value and a private sale value. These are estimates but are a good approximation of its worth.

Next, find out how much of your car loan is left to pay and subtract the car resale value.

For example, if KBB says your car is worth $8,500 in its current condition and your loan is $6,500. That means you could sell your car for around that price, pay off the loan and be left with approximately $2,000.

If your car is worth $8,500 but your loan is for $9,500, you’re in negative equity. If you sold the car for the top amount and paid off the loan, you would have to find an extra $1,000 to settle that loan. That means the car has $1,000 negative equity.

We would strongly recommend not selling a car in negative equity unless you really have to. It may eat into your savings and is not a good use of your assets. However, if you have no choice, you have no choice.

If you want to sell your old car, Car Nation Canada would be happy to help once we reopen. Visit your nearest dealership for a valuation.

Categories: News

Tags: , ,