How to Trade In a Car With Negative equity 2

How to Trade In a Car With Negative equity

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Figuring out how to sell an upside down car so that you don’t lose thousands is daunting. If you’re searching for ways to cover the negative equity in your car, you’re in the right place.

In the past, I’ve had a really bad habit of trading in cars with negative equity, losing thousands every single time. I’ve actually financed ten cars in ten years.

What’s the definition of insanity? Doing the same thing over and over expecting a different result? Yeah, that’s been me.

I’m sure many of you can relate. The truth is we’ve all made stupid financial mistakes, but this one takes the cake for me.

Our Latest Upside Down Car Trade-In Story

My husband and I purchased a brand new vehicle years ago and decided awhile later, that, after financing $48,000 and $733 minimum monthly payment, we were done.

We were so tired of basically paying the equivalent of a house payment for a car.ย  We already knew our credit scores, so we walked into our credit union.

We sat down with our banker, and we explained our situation. to pull the NADA value of my vehicle so that we could know exactly how far “in the hole” we were.

Being a former banker, I know that NADA is how the banks and credit unions determine how much money to loan on vehicles. They actually don’t even use Kelley Blue Book.

KBB is garbage, in my opinion. It’s not an accurate valuation of a vehicle. If banks and credit unions were using KBB,ย  I might feel differently about it, but they just don’t.

Car dealers tend to use KBB to their advantage when they’re offering trade values for your vehicle. So let’s say you walk into your bank. You talk to your banker and learn that you’re upside down $5,000.

If your local bank won’t work with you, try Lending Tree. Their rates are low, depending on credit, but you can click here to see if they’re a valid option.

Whatever you do…don’t have the dealership run your credit. You lose all the power when they know your entire financial situation.

Now you know the value of your vehicle, and you’ve determined you owe $5000 more than you can sell your vehicle for. If you’ve been looking at vehicles, and you have an idea of what you’re looking for, talk to them about it at that time.

Let’s assume you found a 2009 Buick Enclave, and it’s priced at $12,000 with 90,000 miles. They can enter the vehicle specifications onto the NADA website and give you a retail value on that as well. Sometimes the bank or credit union will loan 125% of the retail value.

This is good to know going forward because if you are upside down, sometimes you can get a little bit of that negative equity squeezed in there. But I would always recommend gap insurance in that situation…always.

Check with your insurance company and lender to see if they offer gap insurance that covers vehicle replacement. Not all gap is created equal, but it’s always worth comparing apples to apples and making sure you aren’t overpaying for this product.

Car dealers often make most of their money by selling life and disability insurance, and they mark the rate up (especially on used vehicles).

How to Sell an Upside Down Car When You Have Negative Equity

You need to know your credit score before you get started. You can find out your FICO score here. So you’ll talk to your bank to weigh some options. The next place that I would go after having talked to your bank when you have an idea of how much money you’re gonna have to come out of pocket, is to Carmax.

They’ll give you a valuation offer for it, and Carmax will offer to purchase your vehicle at a set amount.

It’s no b.s. It’s no-haggle. It takes about 45 minutes for them to value your car, and you can leave there with a sheet of paper that says they will buy your car for X amount of dollars within 7 days.

So you want to make sure you’re at the end of your decision-making process before you do that. But take that piece of paper…fold it up, put it in your purse, and now you’re gonna drive to the car dealership where you were looking at a vehicle. And you want to not give away too much information about what you are looking to do.

How to Deal with Car Salesmen when Selling an Upside Down Car

How to Sell an Upside Down Car - Negative Equity Auto Tips

Walk into the dealership and ask to test drive a specific vehicle. They will ask you if you have a car to trade. Don’t tell them that you have a trade yet.

Don’t lie to them, but say, “You know? I’m not sure what we’re going to do yet.” So go in, test drive the vehicle. See how you like it. And make sure you’ve got your pre-approval from your bank as well but the less the auto dealership knows about your financing, the better. Don’t share your plans just yet.

Knowing your credit score will help you get the best rate. Then you can sit down with them and explain to them that you want to negotiate a price for that vehicle. Try to negotiate a price for the purchase of the vehicle without your trade included at first.

Car dealers will hate me for this, but that’s what we have to do. We have to protect ourselves as consumers.

See if they’ll negotiate a price for you and then if they are really persistent about if you are going to be trading your vehicle or if you feel weird about not telling them then just let them know.

Also, let them know that you did get a valuation at CarMax, but you’re waiting to see what their offer is going to be. Don’t share the offer from Carmax just yet.

You’re going to get an offer. They’ll write down some numbers, and they’ll want you to sign something committing to purchasing the vehicle. They might ask you to initial the paper.

Don’t do that. Ask if you can test drive the vehicle overnight while you think about it. Take the car and go to a competing dealership with the car.

With the other dealership’s vehicle, and tell them that you’re looking at this car, but do they have anything similar? And sit down and do the exact same process with that other dealer.

If you have to do this at several different dealers that day, do it and then take the car back and go back and forth between the dealers. I know it sounds like a lot of work, but I can promise you that you will get a better deal.

Car Salesmen will compete for your business if they’re good at their job.

how to sell an upside down car

Get More Money for Your Trade-In

I actually was able to get $500 more than what Carmax had offered me, but, strangely enough, the Honda dealership that I purchased my vehicle from (brand new) was offering me $2000 less than Carmax, and they said, “Oh! We want your vehicle!”

Because we bought it brand new at that dealership. It was 2 years old, and it had been serviced faithfully, so they could put it as a certified pre-owned vehicle on their lot for about $4000 or $5000 more than what they were offering me.

Needless to say, I walked away from that dealership. We’ll never do business with them again.

I hope that these tips have helped you a little bit to understand how to sell an upside-down car. Obviously, you’ll need some cash.

I would never recommend using credit cards to offset negative equity…not even the 0% credit cards because …it’s just not a good idea.

You can tell yourself that you’ll pay off the balance within the promotional period, but it’s just too risky. Unsecured loans are really hard to get unless you have A+ credit, and the interest rate is usually very high on these types of loans due to risk.

How to Make Extra Money to Cover Negative Equity

There are many ways to make extra money either from home or by getting a second job or starting a side hustle. Here are just a few ideas.

  • Donate Blood Plasma for Extra Money – Yep…I’ve actually done this and earned a good amount of tax-free hustle money. You won’t earn enough to cover thousands of dollars of negative equity right away but if you and a partner worked together, you could earn up to $800 extra per month. In just 3 months, you might be able to squirrel away enough cash to pay the negative equity.
  • Start an Online Business – This is my favorite side hustle (for obvious reasons). In fact, this blog earned nearly $3,000 last month without creating or selling products or courses. More than half of my income was passive and actually came from the ads you see.
  • Get a Second Job – I used to listen to Dave Ramsey all the time, and he affectionately calls this a “Dave job”. I recommend starting a side hustle over delivering pizzas, but that’s my personal preference.

Other Ideas for Making Extra Money on the Side to Pay off Negative Equity

The Best Budget “Dave Cars” with 3rd Row Seating for Families

If you’re thinking of selling an upside-down car but are worried about finding a reliable vehicle big enough for your family’s needs, here is a list of options with third-row seating for larger families. You can also search for AWD options if you live in snowy areas.

  • Buick Enclave
  • Chevrolet Traverse
  • Dodge Durango
  • Ford Explorer
  • Mazda CX9
  • Toyota Highlander

These are all midsize SUV’s with third-row seating available. We owned a Buick Enclave and loved it! It was about 9 years old but had leather, heated seats, a backup camera, Sirius XM radio, and AWD, it met my family’s needs at a price of just $10,000. If you can find a good, used vehicle with a lifetime warranty at a dealership (at no additional cost), this is the route you want to go for your “Dave” car.

So to recap: talk to your bank about your options. Go to a Carmax. Get your valuation. Use your valuation as leverage, and just keep that nugget of knowledge for you as fuel with the other dealers so that you can get the best deal when you’re trading out of a more expensive vehicle.

Let me know if you have any questions or comments! I hope this helps you understand a bit more about how to sell an upside-down car!

19 thoughts on “How to Trade In a Car With Negative equity”

  1. Pingback: Financial Behavior Matters: Why We Repeat the Same Spending Patterns

  2. There are lot of problems faced by the car owners while trying to sell these cars. The major problem occurs when it come to the resale value. The owner have to negotiate a lot in order to get their expected price and in most of the cases the owner have to compromise a little bit on the resale value.

    1. Thanks, Christina! If people don’t put down a good amount of money (or pay cash in full) for a car, they start out upside down. I am just hoping to help those who are stuck with negative equity find a way out. ๐Ÿ™‚

  3. I didn’t know about all these options to sell a negative equity. It’s quite a frustrating situation. I loved reading through your post especially trading with the dealers and test drive options. I agree it’s a bad idea to offset a negative equity with credit cards or high interest loans. Thanks for sharing these helpful tips.

    1. So smart, Naomi! By not having a car payment, you’re freeing up so much money every year for other things…whether that’s saving, investing in your business, or being able to take a vacation with the family!

      1. No dealerships use KBB. KBB OVER values trades. This article is wrong. Banks do use NADA and so do dealerships/Salesmen. The D in NADA stands for DEALERSHIP . NADA gives lower values than KBB so yes by all means keep looking at NADA. LOL.

  4. Helpful information! When we were in our 20s, we made some silly car purchases and ended up “upside down” once. It’s something that only has to happen once for it to never happen again!! Thanks for these useful tips!!

    1. Yes, Lynne! It is a very frustrating situation to owe more than the car is worth! Glad you learned from that as well! Thank you for your comment!

    2. Anytime someone says that about KBB, NADA, Autotrader or anyone else I always say the same thing. Oh they said your car is worth a million bucks? Great so if they will write you a check for the car at that price you can use it as a down payment and I won’t even have to take the trade. Let’s call them and see if they will do that. Oh they won’t do that? Great so they won’t stand behind their own appraisal but you think I should use their numbers? Unfortunately I have to be able to sell it for a profit and if I can’t do that I don’t want it at all so it’s up to you

      1. Yikes! You are someone that I would definitely not want to do business with. That is so rude and disrespectful to speak to a client that way. KBB and NADA don’t buy cars. Much like home appraisers…they don’t buy houses. They just valuate them to protect the public from getting screwed by sleezy car salesmen. Best of luck to you in this business. I can tell you that you won’t get very far treating people poorly for educating YOU on valuations.

        No one is saying that you aren’t expected to sell it for a profit. Let’s say I owe $8,000 on a car. Retail value is $8,500, and clean trade in is $6,000. A typical finance manager will say to offer $4,000 for the trade in (wholesale) so that they can earn a hefty profit. Because we all know that used cars don’t pay the salesmen but a couple of hundred bucks at most.

        I think that’s why you’re so bitter. Perhaps you’re in the wrong business.

        1. So on the valuation of Carmax, is that for the purchase of the vehicle and youโ€™d have to come up with the difference in cash to pay it off, or to trade it in? I am so upside down on my car and trying to figure out the best way to get rid of it and come out in a better financial situation. Thanks for your help!

          1. Hi, Meg! The value of your car is the value of your car. Unfortunately, if you still owe more than what Carmax (or any other dealer) can give you, you’d have to either get a loan for the difference or pay cash out of pocket. I don’t recommend financing more negative equity into another car.

    1. Haha…maybe I should clarify these cars aren’t literally upside down from being in a rollover accident ๐Ÿ˜› The owners owe more than what the car is worth ๐Ÿ™‚

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