How to Trade a Car When You Owe More Than Book Value

by Kathryn Hatter, Demand Media
    You may need some special maneuvering to resolve an upside-down car loan.


    When you owe more on your car than it’s worth, your view out the front windshield will be upside down. The financial term being “upside down” on a loan means that the value of the financed item is lower than the amount of the loan, making it difficult to refinance effectively. In most cases, though, you'll still be able to trade your car when you owe more than book value to get yourself back to right-side up.

    Step 1

    Determine how upside down you are in your auto loan -- the difference between what you owe on the car and its current market value. Check websites like Kelley Blue Book or and use the tools to determine the value of your car, selecting options and entering details according to your car’s features. Once you know the value, subtract it from what you owe -- the difference is the negative equity in your car. Remember that this will only be a rough estimate, however, since the value of your car depends on so many variables, such as your location and subjective judgments about the exact condition of your vehicle

    Step 2

    Look for a new vehicle, either a less expensive car or one with a rebate offer. By trading for a less expensive car, you may be able to roll over the existing debt into a new loan with a loan amount that is essentially the same. If you can find another car with a rebate incentive that matches your debt, the rebate will cancel out the debt.

    Step 3

    Explain your negative equity to the dealer to explore your options. These will depend on the amount of your debt and your credit rating. If you have a high credit rating, you should have no approval problems for a new loan to cover your existing debt -- even if it’s up to $10,000, according to Auto Loan Daily. If your debt is lower -- $1,000 to $2,000 -- you probably won’t have approval issues even if you don’t have spectacular credit.

    Step 4

    Apply for financing -- either through the dealer or with your own lender. Provide your personal and financial information, including income, employment history and the information concerning your current car and its financing.


    • If the gap between the trade-in and your negative equity is too high and the dealer or the lender won’t provide financing, you may be able to salvage the deal by adding enough cash to fill in the gap.
    • If you can’t negotiate a satisfactory solution, keep the car for a little longer and increase your monthly payments. As long as your loan doesn’t have prepayment penalties, you can reduce your negative equity with higher payments, making it easier to trade in your car.


    • Expect higher interest rates when you negotiate a rollover or carryover loan.

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