1. What Is Loan With Negative Equity?

Negative equity occurs when the value of an asset falls below the outstanding balance on the loan used to purchase that asset. This calculator helps determine the new loan amount when combining an existing loan with negative equity.

2. How Does The Calculator Work?

The calculator uses a simple formula:

Where:

• \( Old\ Loan \) — The current outstanding loan balance
• \( Negative\ Equity \) — The amount by which the asset's value is less than the loan balance
• \( New\ Loan \) — The combined total of the old loan and negative equity

Explanation: This calculation shows the total amount that would need to be financed when rolling negative equity into a new loan.

3. Importance Of Calculating Negative Equity

Details: Understanding negative equity is crucial for making informed financial decisions, particularly when considering refinancing options or trading in an asset that has depreciated significantly.

4. Using The Calculator

Tips: Enter the current loan balance and the negative equity amount in the same currency. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What exactly is negative equity?
A: Negative equity occurs when the market value of an asset (like a car or house) is less than the outstanding loan balance on that asset.

Q2: How does negative equity affect a new loan?
A: When you have negative equity, that amount is typically added to your new loan, increasing both your monthly payments and total borrowing cost.

Q3: Can negative equity be avoided?
A: Making a larger down payment, choosing assets that depreciate slower, or paying down the loan faster can help avoid negative equity situations.

Q4: Are there risks to rolling negative equity into a new loan?
A: Yes, it increases your debt burden and may put you at risk of being "upside down" on the new loan if the asset continues to depreciate.

Q5: Should I always roll negative equity into a new loan?
A: Not necessarily. It's important to consider alternatives like paying down the negative equity amount separately or waiting until you've reduced the loan balance.