Having negative equity in your car can feel like a financial trap. Read on to discover three practical strategies for dealing with negative equity. 

1. Trade In and Roll Over Your Negative Equity

One of the most straightforward ways to address negative equity is by trading in your current car when purchasing your next one. If you owe more than your car is worth, many banks will allow you to roll that negative equity into the new loan.

Example: Let’s say you owe $21,000 on your current car, but it’s only worth $19,000. If you decide to buy a new car priced at $25,000, your loan would then be $27,000 to cover the extra $2,000 of negative equity. While this option isn’t ideal, it does offer you a way to manage payments over time rather than dealing with a large, upfront expense.

Pro Tip: Maximize your car’s trade-in value by getting multiple offers. Even a slight increase in your car’s offer price can significantly reduce the amount of negative equity carried over. Head to thelasso.com to get offers from hundreds of dealers. 

2. Sell the Car and Cover the Difference with a Personal Loan

Another option is to sell your car outright and cover any remaining negative equity with a small personal loan. If your car payments feel overwhelming, this could help you lower your monthly financial commitment and shorten the time you’re paying off the debt.

Scenario: If you’re paying $700 per month on your car loan but only owe $5,000 more than your car is worth, financing that remaining balance with a personal loan could reduce your payments to around $175–$200 per month, offering much-needed financial relief.

3. Make Extra Payments to Reduce Your Loan Balance

If selling or trading isn’t a viable option, consider making extra payments on your current loan. Additional payments go directly toward reducing the principal balance, helping you pay off the loan faster and cut down on interest costs.

Even small adjustments, like paying an extra $20 or $100 per month, can make a significant impact over time. If possible, consider splitting your monthly payment in half and paying it bi-weekly. This tactic effectively adds an extra payment per year, accelerating your path out of negative equity without drastically changing your budget.

Talk to Your Lender: Call your bank to explore how additional payments affect your loan. Understanding how much extra you need to pay to reach a positive equity position sooner can help you plan effectively.

At The Lasso, you can connect with hundreds of dealerships that compete to buy your car, giving you the best possible price. This can be a game-changer when managing negative equity, making the process smoother and less stressful.