How to Trade a Honda Civic With Negative Equity

When you purchase a car, you usually pay at or near the fair market value. As time passes and the vehicle accrues mileage, its value depreciates. Normal wear and tear also lowers its resale value. If you financed the initial purchase of the vehicle, you may eventually find you have negative equity, which means you owe more on the vehicle than it's worth. This is common when you finance the entire purchase price of the vehicle or receive a loan with a high interest rate. If you provided a substantial down payment during the initial purchase, then you are more likely to retain equity in the vehicle even though it depreciates. You can still trade in a vehicle with negative equity for a newer or different model car; however, your original lender has a lien on your current car. In some states, a lien is merely a burden on the title; in other states, a bank with the lien actually owns the car. In either case, before the bank will remove the lien and allow you to trade your car for another vehicle, the initial loan must be paid in full.

Instructions

1

Obtain the trade-in value of your current vehicle, which is the amount a dealership may credit toward the purchase of another vehicle. You can get a rough estimate of the trade-in value using the Kelley Blue Book, the Black Book or the N.A.D.A. car guide. These guides determine trade-in value based upon make, model, year, mileage and condition of the car. Dealerships often use one of these three guides in their valuations, but trade-in value is subjective. You will not know the definitive trade-in value of your car until you take it to the dealer where you plan to trade your vehicle and ask for a trade-in quote.

2

Determine the payoff balance for your current car loan. The payoff balance is often available on your most recent statement, along with an expiration date. The payoff amount listed on your statement is only good until the next application of interest. You can also call the lender and obtain a payoff quote.

3

Calculate the equity in your vehicle. The equity is the difference between the value and the payoff balance. For example, if your vehicle has a trade-in value of $10,000 and your payoff balance is $8,000, your equity is $2,000. But if your value is $10,000 and your payoff balance is $12,000, you have negative equity of $2,000.

4

Look for a new car with rebates or cash incentives. Sometimes a dealership may offer cars with rebates or cash incentives of $500 to $5,000. You may find a vehicle with a rebate large enough to cover your negative equity, which would allow you to step into your new car loan without the remaining balance of your original car loan.

5

Save enough money to pay off the remaining balance. If your trade-in value is $10,000 and your payoff balance is $12,000, bring $2,000 as a down payment on the new vehicle to cover the negative equity.

6

Consider financing the negative equity along with your new car purchase. Some lenders will lend you more than 100 percent of the value of the new car so that you can trade in your vehicle and make the purchase. For example, if the new car you want to purchase is worth $15,000, your new lender may lend you $17,000 to cover the negative equity on your trade-in as well as the cost of the new car. However, this creates negative equity in your new vehicle from the start of the loan.