Its common practice to trade your car at the dealership when buying a new / used car. Generally the dealer will pay out the loan outstanding on the trade in vehicle, however you may encounter a situation when the loan outstanding on the trade in vehicle is more than the trade in value the dealer is paying.
The above situation is called negative equity. Now there are 2 possible outcomes in this scenario
- You pay for the difference between the loan outstanding and the trade in to finalise the loan
- Add the negative equity portion to the new car loan
The issue with the 2nd option is that all lenders have strict guidelines around how much will they lend against the new car that you are buying, this may restrict the amount of negative equity that you can add to the loan and may cause issues with the new car purchase.
What does this mean for you?
Even if the lender allowed the negative equity to be added to the new loan that means that you are borrowing significantly more against the new car than what it’s worth. This scenario becomes very problematic if you were in an accident and the car was a write off. The comprehensive insurance payout may not cover the full outstanding and you will be left with a debt on a vehicle that is written off.
At Car Beagle we will provide genuine advice with regards to each situation and will be brutally honest about your options even though it may mean that you stay in the current car or choose another cheaper car or do a debt consolidation. We will always give advice that is right for you and your financial situation.
Get in touch with us to see what is the right solution for you.