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I owe more on my current loan than my current vehicle is worth. What do I need to know if I buy a new vehicle?

If you are considering rolling the balance of the old auto loan into your new auto loan, make sure you understand how this will affect the total cost of your new loan. 

Carefully look at the total cost of the new loan including the amount borrowed, the annual percentage rate (APR), the interest rate, the loan term (in months), and the monthly payment – before you agree to anything. If you don’t roll the amount you still owe on your old vehicle into the new loan, and keep your current vehicle while buying a new one, then you will have two loans and two monthly payments to make. Either way, you may want to consider whether it makes sense to go through with the transaction and purchase the next vehicle if you still owe money on your trade-in.

If you owe more than your current vehicle is worth – sometimes referred to as “negative equity” – you should consider whether you can afford a new vehicle.

To find out if you have negative equity, you should look up the approximate value of your current vehicle using websites such as the Consumer Reports, Edmunds, Kelley Blue Book, NADA Guides, and online classifieds. You may also find these and other resources at your local library. Look up the “private sale” value, because that’s what you can get if you sell your vehicle to an individual. Look up “Trade In to Dealer” if you want to see a range of prices for similar vehicles. Then call your lender to find out how much you still owe on your loan.

A dealer may offer to “roll in” the balance of your old loan into a loan for a new vehicle. This is called a “negative trade-in,” because the trade-in adds to the cost of the new loan, rather than reducing it. This might make the new loan unaffordable. Be very careful to make sure you understand the total cost of the new loan and the monthly payments – and the loan term (in months) – before you agree to anything.