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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.

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