Short Answer: Virtually all new and used car dealerships will accept a negative-equity vehicle as part of a trade-in deal, but acceptance will depend on your credit and the value of the vehicle. Keep in mind that unless you pay the balance of the old loan in cash, it will be rolled into your new loan, which can significantly increase your monthly payments and the total amount you’ll pay for the new vehicle. For more details about trading in a car with negative equity, see below.
Car Dealerships That Accept Negative Equity
We contacted car dealerships across the country and found that both new and used car dealerships will accept a negative-equity vehicle as part of a trade-in deal — representatives at every dealership we contacted confirmed this. We were told that in order to approve such a deal, the dealership’s finance department will need to evaluate both the borrower’s credit and the vehicle’s value. To determine the value of the car, you’ll need to bring the car in and provide the VIN number and documentation showing your loan payoff amount.
New cars depreciate quickly, meaning they lose substantial value over a short period of time. If you recently financed the purchase of a new car, you likely have negative equity (i.e., you owe more than the car is worth). This can be a concern if you want to trade the car in as part of a new lease or purchase. In general, it is best to wait to trade in a car until you’ve paid it off, or at least until you have positive equity (i.e., the car is worth more than the amount you owe on it). However, if you need to trade in the vehicle before this point, you can do so at virtually any dealership.
Car Dealerships That Accept Negative-Equity Vehicles
Representatives for dealerships that sell the following car brands told us that they would accept a negative-equity vehicle. If your local car dealership specializes in one of these brands, it should be willing to consider your negative-equity trade-in, depending on your credit and the value of the vehicle.
Additionally, we’ve also confirmed that the following major used car dealership brands accept negative-equity vehicles:
- Berkshire Hathaway Automotive
- Penske Automotive Group
- Sonic Automotive Inc.
You can also reach out to the small, locally-owned used car dealerships near you to confirm that they will accept negative-equity vehicles when financing new leases and/or purchases.
How to Trade In a Car With Negative Equity
To trade in a car with negative equity, the process will work very similarly to that of a regular trade-in. Be sure to bring the car’s title and registration, proof of insurance, all keys and remotes, as well as your loan payoff information and any other necessary documentation from your lienholder.
When a car dealership accepts negative equity during a trade-in or new purchase, this means that it will pay off the existing loan amount, then roll the difference into your new loan (unless you choose to pay the difference upfront). None of the dealerships we spoke to would provide a specific negative-equity range or limit they would accept. However, we were told that if you have excellent credit, the dealership will likely extend much more of your equity. If your credit is less than ideal, the dealership may require you to pay for the shortfall in cash.
Increased Auto Loan Balance
Keep in mind that your negative equity doesn’t go away when you trade in your vehicle. As mentioned above, unless you pay the balance in cash, the amount will be added to the loan balance of your newly financed vehicle. This will increase your total amount owed and the monthly interest you pay.
The Federal Trade Commission has highlighted the fact that dealers may make claims to pay off the full value of your loan — no matter how much you owe — when in fact, you’ll still end up paying the amount owed, even if the dealership accepts your vehicle as part of a trade-in deal. When you have to roll negative equity into your new loan, the best way to maximize your ability to pay it off with minimum interest is to get the best possible rate on your new loan. See our article for more information about auto loan credit tiers.