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FINANCE

Positive Equity / Negative Equity

Trade-in value minus loan [pay-off](/glossary/pay-off-letter). Positive equity is cash toward the new car; negative equity rolls into the new loan.

// Why it matters

Equity in a trade-in is current market value minus the remaining loan pay-off. Positive equity = trade is worth more than you owe; the difference becomes a down payment on the next car (or cash back). Negative equity (you're underwater) = you owe more than the trade is worth; dealers will roll the gap into the new loan, which compounds the problem and extends your underwater period. Rule: if you have $5,000+ in negative equity, do not roll it — pay it off in cash, sell privately, or keep the car until you're right-side-up. Get a written Carmax/Carvana offer plus a pay-off letter BEFORE the dealer math starts.

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