Negative Equity

Negative equity occurs when a vehicle’s loan balance exceeds its market value, meaning the owner owes more on the car than it’s worth [oai_citation:3‡omvic.ca](https://www.omvic.ca/buying/shopping-tips/car-loans/understanding-negative-equity/#:~:text=What%20is%20Negative%20Equity%3F). This often happens when a car depreciates faster than the loan is paid down, especially with minimal down payments or long-term loans. In Canadian dealerships, handling negative equity is common during trade-ins: customers might still owe money on their old car and that shortfall may be rolled into the new loan (increasing the new loan amount). Dealership staff must carefully explain this to customers, as rolling negative equity forward can lead to even larger debt and perpetuate the cycle of being “upside-down” on car loans.