Being “underwater” with your car means you owe more on your car loan than the actual value of the car. It means that if you were to sell the car, the amount you receive would not be enough to cover the remaining loan balance. This can happen if you financed your car with a high-interest loan, length of loan, low down payment or if the car has depreciated significantly in value.

The car buying and selling craze during COVID was a period of high demand for cars which is likely to have a lasting impact on the issue of negative equity.

This demand led to a shortage of cars, which in turn drove up price.  Many people who bought cars during this time ended up with negative equity. As the supply of new cars slowly recovers, prices are likely to remain high. This will make it difficult for people to afford cars without having negative equity, and it will also make it more difficult for people to get out of negative equity if they already have it.

Negative equity on a vehicles can affect you in a number of ways:

• Trade In: It can make it difficult for people to trade in their cars. If you owe more on your car than it’s worth, you’ll have to come up with the difference in cash or with a new loan. This can be a challenge, especially if you’re already struggling to make your car payments.
• It can drive up the price of used cars. If there are more people who are underwater on their car loans, there will be fewer people who are able to trade in their cars. This could drive up the demand for used cars, which will in turn drive up the prices.
• It can make it more difficult to get a loan. If you have negative equity on your car loan, lenders may be less willing to give you a loan for a new car. This is because they’re concerned that you won’t be able to afford the payments.

If your car has negative equity, here are a few options to consider:

• Pay down the loan: If possible, consider making extra payments towards your loan to reduce the negative equity. By paying off more principal, you can bring the loan amount closer to the car’s value.
• Refinance your loan. If you can get a lower interest rate, you may be able to pay off the loan faster and get out of negative equity.
• Consider selling the car privately. You may be able to get a higher price for the car if you sell it yourself.
• Keep the car and make the payments if you can afford to do so.
• Sell or trade-in with negative equity: If you need to get rid of the car, you can sell it or trade it in at a dealership. However, you will need to pay the difference between the loan balance out of pocket. It’s unlikely that a dealer will offer the same amount as your negative equity when buying or trading in a vehicle.

In the future, you can try to mitigate this issue by:

* Paying a larger down payment
* Get into a shorter lease term
* Get a Low interest loan Remember that there is no guarantee that a car will appreciate in value.

On the Flip Side- here are some reasons why/ how some cars can appreciate:

• Rarity: Rare cars are more likely to appreciate in value than common cars. This is because there are fewer of them available, which makes them more desirable.
• Collectability: Collectible cars are also more likely to appreciate in value. This is because they are sought after by collectors, who are willing to pay high prices for them.
• Cult following: Cars that have a cult following are also more likely to appreciate in value. This is because they are popular with a specific group of people, who are willing to pay high prices for them.

If you are considering buying a car that you think might appreciate in value, it is important to do your research. You should look for a car that is rare, collectible, or has a cult following. You should also consider the condition of the car, as well as its history. It is also important to remember that there is no guarantee that a car will appreciate in value. The value of a car can fluctuate (as discussed above) based on a number of factors, including the overall economy, the popularity of the car, and the availability of the car.

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