How to Know If the Equity In Your Car is Positive or Negative

How to Know If the Equity In Your Car is Positive or Negative

Taking into consideration your desire to get out of the leased car and make it your own, it is important for you to know the nature of equity you have in your car whelther positive or negative. You only need to substract the amount you owe on the vehicle from its current market value. It is expedient that you should know whelther your equity is positive or negative if you are thinking of refinancing your car loan or selling the car or when you choose to trade it to a dealership. There are few things you should know and they are as thus:

What Does Positive Equity in a Car Means?

When you operate a car loan, the vehicle acts will stand as collateral for the loan so when there is a case whereby you end up defaulting on the debt, the lender will have the legal authority to repossess the car and sell it out just to recoup what you owe. You will experience positive equity when the market value of the car go beyond the principal amount on your loan. Like for instance, if you are owing $9,000 on a car with a current market value of $12,000, you will have $3,000 in positive equity. This means that when you are able to have positive equity with a car loan, you are on a safer side as both the lender and you will have good opportunity because you can sell the car and make good money to pay off the loan in full which will enable you to make the lender get satisfied and you will be free without using extra debt.

Having Negative Equity Means What?

The moment you have negative equity with your car, it means the market value of the car is less than the principal amount of the loan. For instance, if auto loan payment is $13,000 which now worth $11,000, you will be left with $2,000 in negative equity. However, this is not encouraging for both you and the lender because when the amount of your car is sumed up, there is tendency that you won’t have enough money from your insurance company to pay off the loan in full. Another stress is that it is possible for the lender to out your money when you are unable to pay off the negative equity amount. However, even in a case whereby you sell your car or trade it when you choose to get a new one, the price you will need to sell it out won’t be up to how much you need to pay off the loan in full. This shows that the only way you can satisfy the lender is by making sure you pay a lump sum amount of the difference which will then close the loan. There are also instances whereby the dealer can choose to pay off full amount of the loan and then decide to put the amount of the negative equity into your new loan. You might be thinking this approach is interesting, be reminded that it will certainly increase the amount of your new loan which you will have to continue to pay interest on it.

How You Can Check Equity in Your Car

It is certain that the process of calculating your car equity involves subtracting the principal amount of your auto loan from the vehicle’s current value. You can check this by logging in your account online with the ledger. In order for you to get car’s fair market, you will need to be patient and consistent. One of the best ways you can do this is by looking up to the car’s value on Kelley Blue Book. With this process, you will only need to input the car’s year, model, manufacturer, your personal ZIP code and its current mileage. In a situation whereby the car model comprises of more than one style, you will have to choose your preferred style from the list and then get normal value of it with the car’s standard equipment. Also, it is expected that you input the color of the car and present condition. Taking for instance, a 2014 Hyundai Santa Fe Sport in a good working condition with 102,000 miles is worth roughly $8,237 if you were to trade it in. In a situation whereby you decide to sell it to a private party, you could get around $11,000 out of the sale. However, if it is on record that you owed $7,000 on the car, your equity would be positive, with $1,137 in positive equity with a trade-in or about $4,000 in positive equity with a private sale. On the other side, if you owed $9,500, you would have negative equity if you were planning to trade it in and positive equity if you were planning to sell it to a private party. Therefore, you need to know the amount of equity you have which is based on the type of sale which will enable you to make the appropriate decision for such situation.

When Is It Appropriate to Trade in Your Car?

In most cases, trade-ins usually have lower sales price due to the fact that the dealer would turn around and marks it up to sell to the next owner. On that note, it is advisable that you sell your car to a private party. However, if you are someone that doesn’t have the chance to go through such process or probably you are satisfy with dropping the car at dealership since you wish to acquire a new one, you can simply consider trading the car. However, the most appropriate time to trade in your car is when you have positive equity. If otherwise whereby you have negative equity, it is most apt not to trade in because you will be on the hook for paying off the remainder of the loan which might be immediately or in a style of new loan.

Are You Set To Trade In?

If you are passionate to buy a new car and trade in your present car, it is important you check out if your equity is positive or negative before making any decision. The first one you should go for is by trying to sell out the car to a private party which can afford you the opportunity to earn extra money from the transaction. You can also go for trading in a situation whereby you get lower interest rate on the new loan.

References: experian.com/blogs/ask-experian/how-do-i-know-if-i-have-positive-or-negative-equity-in-my-car
Image Credit: madeeasy.com

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