This calculator provides an estimate. Actual loan terms and payments may vary.
Understanding Your Car Payment with Negative Equity
When purchasing a new car, you might consider trading in your old vehicle. If the outstanding loan balance on your old car is more than its current market value, you have what's known as "negative equity." This means you owe more on the car than it's worth, and that difference needs to be accounted for in your new car loan. This calculator helps you understand how that negative equity impacts your monthly car payments.
How Negative Equity Works
Imagine you owe $15,000 on your old car, but it's only worth $12,000. The $3,000 difference is your negative equity. Dealerships often allow you to roll this negative equity into your new car loan. While this might seem convenient, it essentially means you're financing the difference, increasing the total amount you borrow and, consequently, your monthly payments.
The Calculation Formula
The monthly car payment is calculated using a standard auto loan amortization formula. The key here is determining the principal loan amount, which includes the price of the new car, any negative equity from your trade-in, and is offset by your down payment.
Principal Loan Amount = (New Car Price + Negative Equity) – Down Payment
Once the Principal Loan Amount is determined, the monthly payment (M) is calculated using the following formula:
Step 3: Calculate Total Number of Payments (n)
n = 5 years * 12 months/year = 60
Step 4: Apply the Loan Payment Formula
M = 32000 [ 0.00625(1 + 0.00625)^60 ] / [ (1 + 0.00625)^60 – 1]
M = 32000 [ 0.00625 * (1.00625)^60 ] / [ (1.00625)^60 – 1 ]
M = 32000 [ 0.00625 * 1.45329 ] / [ 1.45329 – 1 ]
M = 32000 [ 0.009083 ] / [ 0.45329 ]
M = 32000 * 0.020038
M ≈ $641.22
In this example, the estimated monthly car payment would be approximately $641.22. Notice how the $4,000 in negative equity increased the loan amount and thus the monthly payment compared to a scenario without negative equity.
When to Use This Calculator
Use this calculator if:
You're planning to trade in your current car.
You suspect you owe more on your current car loan than it's worth.
You want to estimate how much your monthly car payment will be on a new vehicle, considering the added cost of negative equity.
You're comparing different financing offers or loan terms.
Understanding the impact of negative equity is crucial for making informed financial decisions when buying a new car.
function calculateCarPayment() {
var carPrice = parseFloat(document.getElementById("carPrice").value);
var downPayment = parseFloat(document.getElementById("downPayment").value);
var negativeEquity = parseFloat(document.getElementById("negativeEquity").value);
var loanTermYears = parseFloat(document.getElementById("loanTerm").value);
var annualInterestRate = parseFloat(document.getElementById("interestRate").value);
var resultDiv = document.getElementById("result");
if (isNaN(carPrice) || carPrice <= 0) {
resultDiv.innerHTML = "Please enter a valid new car price.";
return;
}
if (isNaN(downPayment) || downPayment < 0) {
resultDiv.innerHTML = "Please enter a valid down payment.";
return;
}
if (isNaN(negativeEquity) || negativeEquity < 0) {
resultDiv.innerHTML = "Please enter a valid negative equity amount.";
return;
}
if (isNaN(loanTermYears) || loanTermYears <= 0) {
resultDiv.innerHTML = "Please enter a valid loan term in years.";
return;
}
if (isNaN(annualInterestRate) || annualInterestRate < 0) {
resultDiv.innerHTML = "Please enter a valid annual interest rate.";
return;
}
// Calculate Principal Loan Amount
var principalLoanAmount = (carPrice + negativeEquity) – downPayment;
if (principalLoanAmount 0) {
monthlyPayment = principalLoanAmount * (monthlyInterestRate * Math.pow(1 + monthlyInterestRate, numberOfPayments)) / (Math.pow(1 + monthlyInterestRate, numberOfPayments) – 1);
} else {
// If interest rate is 0%, payment is simply principal / number of payments
monthlyPayment = principalLoanAmount / numberOfPayments;
}
resultDiv.innerHTML = "Estimated Monthly Payment: $" + monthlyPayment.toFixed(2) + "";
}