If you make a habit of transferring debt every time you buy a new car, you can end up with a very high debt load. This situation is called ‘negative equity’.

If you are in this position, you will often find yourself in a sticky situation if you discover that your new car is a lemon. For example, you can request a buyback, but the manufacturer will refuse to include the negative equity payment from the old vehicle that you traded in to get the new vehicle that is a lemon. The lemon law of some states says that the manufacturer must return the negative capital when you buy a lemon again, however, there are states that do not address this situation, so the manufacturers say that they are not responsible and will not include it in their repurchase .

There are several ways to avoid or get out of this position. The first thing you need to do is find out if you really are in this financial situation. Some car dealers will try to increase their profits by undervaluing the car in order to pay less for the trade-in. It’s important to know how much your vehicle is really worth before making a trade-in. The Kelly Blue Book is a good source to find out how much your vehicle is worth. Next, you need to find out how much debt you have left on your current car loan to find out if you’re in a lower equity position. This will allow you to have a better price negotiating advantage.

Most experts recommend that you pay off your existing vehicle before you buy a new car, especially if you’re in a state that hasn’t implemented rules on manufacturers, including negative equity when they come back to buy a lemon. If you don’t want to wait to pay off your current car, you can use any manufacturer’s cash incentives or rebates to pay off negative principal on the new loan, or pay off your current car loan. Other tips to avoid negative equity is to buy an affordable new car and get short-term financing, shop around for financing options to get a deal you can manage. The negative equity dilemma can be difficult; however, with a little planning, you will ensure that you can get out of the situation much more easily and quickly, and even avoid getting into the situation in the first place.

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