If you are upside down in your trade and wish to purchase a new or used car you should find a car with inherent positive equity in it. That is to say a vehicle has a higher value to the lender than its current market value. Examples include new cars with high cash rebates and used cars that are in high supply and low demand.
Regardless of the amount of the cash rebate lenders base the value of the new car on the invoice or MSRP amount. So if a new car has a $3,000 cash rebate, you can apply the $3,000 towards your negative equity. An example of a used car in low demand used car would be a new convertible in the winter time. Such a vehicle would have a much lower market value that it’s book value.
You should also know that if you have negative equity and trade in your car expect to pay $20 to $30 per month higher for the new car for every $1,000 you are upside down. In other words if you have $5,000 in negative equity and see a new car advertised for $250 per month you should expect to pay from $350 to $400 per month for the same vehicle.
If you know what your interest rate is and how much you are upside-down you can use our auto loan calculator to find out how much more per month you could expect to pay for a new car.