How to Sell a Financed Car With Negative Equity in Canada

It’s customer question time and rather than a pure auto loan question, this one combines selling your car with auto loans, which makes it a prime candidate for our blog.

 

The question was ‘Can I sell a car with an upside-down loan’

 

The combined knowledge of our auto loans team and sales team helped create the answer.

 

Being Upside Down on a Car Loan

Being upside down is another way of saying you’re in negative equity. That means the amount outstanding on the auto loan is more than the current value of the car.

 

This is normal when you buy a brand-new car. The car’s value depreciates in a short burst when you first buy it so it is worth less than you paid.

 

If you used a small down payment or a no-money-down auto loan, you’ll have a small cushion to insulate yourself from depreciation. This can result in negative equity.

 

In normal circumstances, there’s absolutely nothing wrong with being upside down. As you repay the loan, the amount you owe and the value of the car evens out and will then switch so you have equity in the car.

 

If you don’t like negative equity or your situation has changed, you may need to get out of the auto loan. You can sell a car with an upside-down loan by selling to a dealership.

 

What to do With a Negative Equity Car Loan

 

Keep the Loan: As you repay the loan, you pay down the amount borrowed while depreciation slows. At some point, the amount you owe will be less than the value of the car so you’ll be out of negative equity.

 

If you can manage everything until then, this is the easiest and cheapest way to manage everything while keeping your car.

 

Make Regular Overpayments: If you’re in a position to keep the loan and just don’t like being upside down, you can overpay to even things out faster.

 

Even up your payments or come up with a figure to overpay. As long as your loan allows overpayment, you will pay it off faster and get out from under it faster too.

 

Make a Lump Sum Payment: If you have savings, you could make a lump sum payment to even things out. This is less than ideal if you need to get out of the loan but if it’s just negative equity causing you sleepless nights, this is a way out of it.

 

Contact your lender and arrange to make a lump sum overpayment on the principal (the actual loan amount, not interest). This gets you out of negative equity.

 

Sell the Car: If you’re struggling to make payments and you’re upside down, selling your car to a dealership is a partial answer. This depends on you having the cash around to settle the loan, but can work.

 

We work with your lender to repay the loan and get title to the car. This requires you to pay the lender the amount you’re upside down, so our payment and yours combined settle the loan in full.

 

It takes some coordination but it works!

 

For any questions or concerns, please don't hesitate to contact us here!

 

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