How To Make Positive Equity Work For You
At some point in your car ownership journey, you may wonder how much your current vehicle is really worth and how that value plays into your next move. Whether you’re thinking about trading in, refinancing, or selling your vehicle outright, one key factor can work in your favor: positive equity. What is positive equity on a car, you may ask, and why does it matter? At Front Royal Buick GMC, we believe that understanding your vehicle’s equity can unlock smarter decisions and better deals. In this guide, we’ll break down what positive equity on a car is, how to tell if you have it, how to build it, and how to make it work to your advantage. Visit us today in Front Royal, VA!
Getting Familiar With Positive Equity
What is positive equity on a car? Having positive equity in your car indicates that its market value exceeds the outstanding balance on your auto loan. For example, if your car is worth $20,000 and you owe $12,000 on it, you have $8,000 in positive equity. This equity becomes a valuable asset, something you can use to your advantage when trading in your car or negotiating a deal on a new one. In contrast, if you owe more than your car is worth, that’s called negative equity, and it can make your next purchase more complicated.
What Is Positive Equity On a Car Loan?
When we speak about what positive equity is on a car and the loan that was taken out for it initially, the focus shifts to your financial position in relation to your financing. Understanding your equity is crucial when considering selling your vehicle, as it can influence the timing and method of sale. If you have a loan, positive equity means the value of the car exceeds what you still owe to the lender. Using cash to purchase a vehicle can provide immediate 100% equity, simplifying future financial decisions. This positive balance gives you options. You can trade your vehicle in and apply the equity to your next down payment, or sell the vehicle and pocket the difference after paying off the loan. Positive equity on a car is what makes lenders more likely to offer favorable refinancing terms, which can lead to better auto financing options. This can lead to a lower interest rate or shorter term, which saves you money over time.
How Do You Know If You Have Positive Equity On a Car?
Determine Your Car’s Market Value
You can check online tools like Kelley Blue Book and Edmunds, or get an appraisal from our team here at Front Royal Buick GMC to determine the current market value of your vehicle. Make sure you’re comparing vehicles of similar year, mileage, condition, and trim.
Check Your Loan Balance
To determine the precise payoff amount of your current loan, which may include additional fees alongside the principal, please log into your loan account or reach out to your lender directly.
Compare the Two
If your vehicle’s market value is higher than your loan payoff amount, positive equity on a car is what you have. If it’s lower, you’re upside down in the loan and have negative equity.
How To Get Positive Equity On a Car
Make A Larger Down Payment
When you finance a vehicle, a larger down payment reduces how much you owe from the start, making it easier for your car’s value to stay ahead of your loan balance, especially since new vehicles depreciate most in the first year. Positive equity on a car is what can also provide additional funds when purchasing a new vehicle, giving you more flexibility in your financing options.
Choose A Shorter Loan
While longer loan terms offer smaller monthly payments, they can slow down your ability to build equity. A shorter loan term means you’re paying down the principal faster and reaching positive equity sooner. Opting for a shorter loan term can also make it easier to manage a new car loan in the future, as you build equity more quickly.
Buy A Car With High Resale Value
Not all vehicles depreciate at the same rate. Like many in the Buick and GMC lineup, some models are known for holding their value well. A vehicle with a higher resale value helps protect your equity over time. When purchasing a new car, consider models known for their high resale value to protect your equity over time.
Avoid Rolling Over Negative Equity
If you trade in a vehicle with negative equity and roll that amount into your new loan, you’ll be set back right from the start. Instead, try to pay off that negative equity separately if possible or wait until it’s reduced. Evaluating the value of your current vehicle before making a decision can help you avoid rolling over negative equity into a new loan.
Take Good Care of Your Car
Routine maintenance, timely repairs, and keeping the mileage in check all help preserve your vehicle’s value. Even small things like keeping the interior clean and protecting your paint can make a big difference in appraisal value when it’s time to trade in.
Keeping track of your car’s current mileage and maintaining it properly can significantly impact its appraisal value.
Helping You to Maximize Your Trade-In
When you’re ready to make your next move, Front Royal Buick GMC is here to help. Our appraisal process is fast, transparent, and based on real-time market data, not just fake estimates. We’re happy to help you understand what positive equity on a car is and help ensure you get the most out of it. If you’re thinking about trading in your vehicle soon, visit us in Front Royal, VA, and we’ll help you check your equity, explore your options, and get behind the wheel of something you love today!
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