Understanding positive and negative trade-in equity

Equity is allowance minus payoff

Trade equity is the allowance for the vehicle you trade minus the loan still owed on it. Positive equity reduces the amount financed on the next vehicle. It is not also added as cash you put down.

Negative equity means the payoff is larger than the allowance. You can roll that shortfall into the new loan or pay it in cash. The calculator states which one the scenario uses. The shortfall is counted once.

The allowance is not the purchase price

The new vehicle’s price is separate from the trade. Adding the allowance on top of the price would count the trade twice. The amount financed starts from the price, tax, and fees, then subtracts down payment, rebate, and positive equity.

Sales tax in this model is illustrative. One mode taxes the full price. Another subtracts the allowance before tax. Neither mode looks up a state. Title and registration stay outside the tax.

Needs review before launch. State tax rules for trade-ins differ. The two modes here are illustrations, not a tax determination.

Check the equity line on the calculator

The auto loan page states the equity and whether negative equity is financed. Changing the allowance or the payoff changes the amount financed and the payment. The trade is still counted once.

A trade does not replace a down payment. Cash you pay at signing is a separate field. Use both fields when the deal has both.

Try it in a calculator

Related guides

• How this auto loan payment is built
• How down payments affect auto financing
• 60-month versus 72-month auto financing

Read the methodology

Written to explain how this site’s calculators work. Not a review by a licensed mortgage professional, and not a recommendation to borrow. These notes are not financial, tax, or legal advice.