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FINANCE
Underwater / Negative Equity
Owing more on your car loan than the car is worth.
// Why it matters
You're underwater (or have negative equity) when your loan balance exceeds the car's current value. Common in years 1-2 of a high-finance loan with little down payment. If you trade in an underwater car, the dealer rolls the negative equity into the new loan ("you owe $25k on a car worth $20k, we'll add the $5k to your new loan"). This compounds the problem. GAP insurance protects against negative equity if your car is totaled.
// Related terms
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