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Car Loan Glossary • negative-equity

Negative equity, often termed being 'upside down' on your loan, occurs in Canada when the outstanding balance on your current vehicle loan exceeds its actual market value at the time of trade-in. This situation commonly arises due to rapid vehicle depreciation, extended loan terms, minimal down payments, or the impact of higher interest rates, a notable factor in the Canadian automotive market leading into 2025.

When a vehicle with negative equity is traded in, the deficit is typically added, or 'rolled over,' into the financing for your new vehicle. This significantly inflates the principal amount of your new loan, resulting in higher monthly payments, an extended repayment period, and a substantial increase in the total interest paid over the life of the new loan. For Canadian consumers, this matters immensely as it can perpetuate a cycle of debt, making it challenging to build equity in future vehicles and potentially limiting access to favourable financing terms. While there aren't specific federal negative equity regulations, provincial consumer protection acts across Canada, such as those in Ontario or British Columbia, mandate clear disclosure of all financing terms and costs, ensuring transparency regarding the financial implications of rolling over negative equity.
Related Topics: negative-equity trade-in

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