Trade-in & negative equity calculator
Trading in your car? See how negative equity affects your new loan size, monthly payment, and total cost. Models sales-tax credit on trade-in (where allowed by state).
What is negative equity?
Negative equity ("underwater" or "upside-down") happens when you owe more on your current car loan than the car is worth. If you owe $22,000 but the dealer offers $17,000 trade-in, you have $5,000 negative equity. That $5,000 doesn't disappear — it gets rolled into your new loan, making your monthly payment higher and increasing total interest paid.
Sales tax credit on trade-in (varies by state)
In most states, trading in a vehicle reduces the taxable amount on your new purchase. If you buy a $35,000 car and trade in a $17,000 car, sales tax in most states is calculated on the $18,000 difference — saving hundreds in tax.
States that do NOT allow trade-in tax credit (you pay sales tax on the full new car price): California, DC, Hawaii, Kentucky, Maryland, Michigan, Montana, Virginia. In these states, trading in offers no tax savings — only the price-reduction benefit applies.
Rolling negative equity is risky
Rolling $5,000 of negative equity into a 72-month loan at 7.5% APR costs an additional $1,170 in interest over the loan life. You're also starting day one already underwater on the new car — a fender-bender total loss in year 1 means GAP insurance is the only thing standing between you and an out-of-pocket payoff. GAP insurance is essentially mandatory if you're rolling negative equity.
For context on whether to refinance the existing loan first instead, use our auto loan refinance calculator. For the new loan math without trade-in complications, use the auto loan calculator. For full purchase cost including registration and title, see dealer vs private-party purchase guide and sales tax on used car.