How to Calculate a Car Payment When Trading in an Upside Down Car

An upside-down car is one that is worth less than you currently owe on the loan. This leaves you in a sticky situation because even if you sell the car, you still owe money on the loan. When you trade in an upside-down car, you have two options. The first is to apply the trade-in value toward paying off your old car loan and making a large payment to pay off the remainder of the loan. The second option, if your lender allows it, is to roll over the negative equity into a loan for your new car.

Calculate Payoff Amount

Look at your most recent car loan statement to find the outstanding balance on the loan. If you have made a payment since the statement, check the outstanding balance by calling the lender or logging into the online account management section for your car loan.

Divide your annual interest rate by 1,200 to find the monthly decimal interest rate. Multiply the result by the outstanding balance to calculate a month's worth of interest. Add this to your outstanding balance to get your payoff amount. You might not owe quite this much if your payment gets processed quickly, but the conservative estimate ensures that your payment will be enough.

Add a prepayment penalty if your car loan includes one. Look at your loan origination documents or call your lender to find out what the penalty is.

Go to a car dealership and ask for an estimate on your car's trade-in value. Alternately, you can look this up online by entering your car's information on a website that estimates used car values.

Subtract the trade-in value from the total payoff amount on your car loan. This is the amount of the final payment you will need to make to finish paying off the loan.

Future Car Payments

Complete the first three steps above to calculate the total amount of money you need to pay off your current car loan.

Add the purchase price for your new car. If you have already made a purchase agreement, use the exact price you settled on. Otherwise, you will have to estimate it.

Subtract the amount of the down payment you plan to make on your new car, if any.

Subtract your car's trade-in value. The result is the amount you need to borrow through your new car loan. When your car is upside-down, the amount you need to borrow will usually be more than the purchase price of the new car, unless you make a very large down payment.

Enter the amount you need to borrow, the interest rate you qualify for and the length of your repayment term into an online loan calculator to determine your monthly payment. You can also calculate this by hand by plugging the information into the formula: [A(r/12)]/[1-(1+r/12)^-m]. A is the amount you will borrow, r is the interest rate as a decimal and m is the number of months in the repayment term.


  • Unless you absolutely need a new car now, it is financially wiser to keep your current car and continue making payments on your upside-down loan. You will eventually catch up because your payments will be more than the car's depreciation as the car gets older and the amount of interest in each payment decreases.


  • Some lenders will not allow you to roll over the balance for your upside-down loan into a new loan. The ones that do often charge a higher interest rate because the loan is not fully secured by the value of your new car.