How negative equity is calculated
Negative equity exists when the lender payoff is higher than the vehicle’s trade-in value. Rolling it into a replacement loan means financing part of the old vehicle after it is gone.
Negative equity = payoff quote − trade-in value
New financing = vehicle + fees + shortfall − cash − incentives
Why loan-to-value matters
An amount financed above the replacement vehicle’s price produces LTV over 100%. Lenders may use a different vehicle value and eligibility limit, so this ratio is an estimate rather than an approval decision.
Ways to reduce the shortfall
Compare several purchase and trade-in offers, request an exact payoff quote, consider keeping the current vehicle longer and avoid treating a longer new term as a reduction in debt.