Dealer glossary
Negative equity
When a customer owes more on their current vehicle than it is worth.
Definition
Also called upside down, underwater
Negative equity is the gap between the loan payoff and the appraised value of the trade. It is common on vehicles financed over long terms, where the balance falls more slowly than the value does.
For the deal, it is a number that has to be absorbed: paid by the customer, covered by discount, or rolled into the new loan. Rolling it is the usual answer, and it makes approval harder because the amount financed goes up while the collateral value does not.
It is also the reason GAP coverage exists as a product, since a total loss on an upside-down vehicle leaves the customer owing money on a car they no longer have.
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