If you need another vehicle but your current vehicle has negative equity, you may be able to carry it over to your next car loan. But how much negative equity can you roll over, and how much should you? Here are a few tips.
Rollover amounts may vary
When you owe more on the vehicle than it’s worth, it’s called being underwater on your loan or being in a negative equity position.
Some borrowers who are under water on their auto loan are considering negative equity rollover on their next auto loan. Depending on how much negative equity you have, you may be able to defer everything, but that depends on your budget, your criteria, and the lender you are working with.
The more negative your car equity, the harder it can be to sell or trade in your vehicle. If your auto loan is hundreds or even thousands of dollars more than your car’s current market value, selling it for what you really owe becomes a challenge.
Chances are, the amount of negative equity in your vehicle is unique to you. To determine your car’s negative equity, you need to compare your existing loan balance to the current value of the vehicle.
Ride on the negative equity of your vehicle
When you roll over your negative equity, you are adding the difference between the value of your car and the amount of your loan on your next auto loan.
If you have $ 1,000 of negative equity on your current vehicle and you buy a vehicle for $ 10,000, your next loan balance would be $ 11,000 with negative equity added. similar to debt consolidation.
However, whether or not this is possible depends on what you can realistically afford. A lender may not approve a loan that is too much more than the value of the next car because lenders also consider your loan-to-value ratio.
A loan-to-value ratio, or LTV, is the amount of your loan compared to the actual cash value (ACV) of a car. It’s calculated by dividing your loan amount by your ACV, and it’s usually expressed as a percentage. Most auto lenders typically have a maximum loan-to-value ratio of around 125%. This means that your vehicle loan should not exceed more than about 125% of its value.
Since negative equity rollover means adding to the total balance of your next car loan, depending on how much negative equity your current car has, it could exceed this common rule by 125%.
The amount of negative equity you can carry forward also depends on your personal situation. Each lender varies in their needs, and everyone’s circumstances are different – and that includes the income and disposable income they have. If your loan balance with negative equity factored in creates a high monthly payment for which your disposable income just doesn’t have room, you won’t be likely to be approved for sure loans.
Believe it or not, lenders don’t want to approve auto loans that overburden borrowers. And they prefer to approve loan amounts that are comparable or close to the value of the vehicle.
Consider the interchange conveyor belt
If you are still running on negative equity on your auto loans, you can be on the recovery treadmill. It is generally defined as a cycle of underwater on your car loan and choosing to simply roll that negative equity every time you buy.
It is also an easy cycle to follow.
Because deferring negative equity means increasing the amount you need to borrow, it also means more interest charges and possibly longer loan terms to make monthly payments more affordable. Before you know it, you’re having a hard time paying off the loan quickly enough to keep up with the vehicle’s depreciation (loss of value over time).
Anytime you hand in negative equity, you’re likely to start your next car loan in a negative equity position again because you probably borrowed more than the vehicle is worth.
Getting off the repossession conveyor belt can be as easy as waiting for your loan balance to match the value of your vehicle. Staying up to date on your auto loan and keeping your vehicle in good condition can help you catch up or even make extra payments when you are able. Over time, your car’s depreciation also slows down if you maintain it.
Bad credit auto loans and negative equity
Many borrowers with bad credit can find themselves in a negative equity position if their interest rate is high, making it difficult to repay their loan quickly. Since your credit score is usually the most important factor in determining your interest rate, a borrower with credit problems may be more likely to have an underwater auto loan because of the interest charges and a high loan balance.
Fortunately, one of the best ways to improve your credit score is to acquire new credit that improves it. An auto loan reported in your credit reports means that your timely payments are also reported. If you maintain a good payment history on your car loan, it could mean ending the loan with a better credit rating than when you started.
Subprime auto loans are reported to the credit bureaus, and they are generally intended for borrowers who are facing credit issues such as bankruptcy, no credit, situational bad credit, and other difficult credit situations.
If your current car loan isn’t helping you improve your credit score, it might be time to consider a subprime auto loan which is supposed to repair your credit. A higher credit score means a better chance of auto loan approval and qualifying for a better lower interest rate next time.
Need Auto Loan Resources?
AT Express auto loan, we know how difficult it can be for borrowers with credit problems to find a lender who can help them get the vehicle they need. And trying to find a lender can be long and tedious – so let us help you!
We have developed a network of dealers from coast to coast who have signed up with subprime lenders who specialize in helping borrowers with unique credit situations. If you need a car loan and don’t know where to go, let us guide you. Fill out our form completely free and without obligation auto loan application form. We will search for a dealer in your area who has registered with bad credit lenders.