When you trade your vehicle into a dealer and pay off the remaining balance, you’re off the hook financially. But you’re also left without a car. Although public transit and ridesharing are common alternatives, you might still want your own ride.
In that case, it’s not uncommon for people to trade in for a used car. You can roll your negative equity into a smaller loan with, ideally, a lower monthly payment. In turn, you’ll have more money to apply to your outstanding balance.
However, this approach is not a recommended solution because your new loan is immediately upside-down. You aren’t erasing the negative equity.
Keep in mind, by rolling your loan into a cheaper car, you’re also extending your loan’s term. The longer your loan term, the more time your next car has to depreciate while you still owe money. If you don’t proactively repay your new car loan ahead of schedule, you could dig yourself into a worse financial hole. Read the rest of this entry »