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General information only: Contracts, notices and individual rights can differ. Contact the lender, insurer, financial counsellor or legal adviser as appropriate.
Quick answer
Negative equity means the current loan payout is higher than the amount the vehicle could produce after sale costs. The car can be sold, refinanced or traded only if the shortfall is funded or an acceptable replacement structure is approved.
What to do now
- Obtain a current lender payout
- Use a realistic sale or trade value, not an asking price
- Subtract sale or discharge costs
- Calculate the shortfall before discussing a replacement car
Calculate equity using real exit figures
Equity is the net amount available from the car less the current payout. A dealer trade offer, private-sale estimate and insurer value can be different. Use the pathway you are actually considering and allow for the costs of that pathway.
Why negative equity develops
It can arise from rapid depreciation, a small deposit, financed fees or add-ons, a long term, a balloon, an earlier rolled-in shortfall or damage to the vehicle. Making repayments does not guarantee that the payout falls faster than the car’s value.
Rolling the shortfall into another loan can compound the problem
Adding old debt to a replacement vehicle increases the new amount financed and LVR. It can increase the repayment, total interest and risk of remaining in negative equity. Approval is not proof that the structure is financially sensible.
- Contribute cash to clear some or all of the shortfall
- Keep the current car and reduce the payout where practical
- Choose a lower-cost replacement and shorter structure
- Compare the complete remaining cost before refinancing
Calculate the shortfall
Assume a lender payout of $38,000 and net sale proceeds of $31,000.
- Current payout: $38,000.
- Net value after sale costs: $31,000.
- Negative equity: $38,000 − $31,000 = $7,000.
Result: The $7,000 must be funded or incorporated into an approved replacement arrangement before the existing security can be discharged.
Primary sources
Government and regulator sources checked on 8 August 2026:
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