How to deal with negative equity on a vehicle

I can’t tell you how many times a new purchase cannot go through because of negative equity. In the car biz, we call this being “upside down.” It is a major and sometimes deal-breaking concern these days.

Negative equity is “when the value of an asset falls below the outstanding balance on the loan used to purchase that asset.” In simpler terms, it is when your vehicle is not worth the amount that you owe on it.

So, what should you do if you want to buy a car but have negative equity on your current vehicle? How can you get “turned around?”

Put cash down! I can’t stress the importance of cash down! It automatically puts you in a better equity position.

Mike Gardner, Blue Springs Hyundai & Nissan Finance Manager, said that according to NADA statistics, there is a 30 to 35 percent decrease in value of a vehicle over two years. So how can you protect yourself from negative equity on your next purchase?

“A lower finance term (if you can), ensures a quicker trade cycle,” Gardner said. “Also, there are products that protect you against a total loss. I call it “save your butt” insurance … the professional term is GAP (Guaranteed Auto/Asset Protection).”

Have you ever dealt with negative equity? Were you able to turn the situation around? I’d love to hear your story in the comments.