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Can You Roll Over a Car Loan?

Can You Roll Over a Car Loan?
Austin Kilham
Austin KilhamUpdated April 12, 2023
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If you’re planning to trade in your current vehicle for a new one, but you’re still paying off the loan, a car dealer may suggest rolling over your old car loan into a new one. Before you agree, however, there are some drawbacks to rolling over a car loan you should carefully consider.How does rolling over a car loan work? Read on to find out what the process involves and why a rollover car loan may not be in your best interest.

How Does Rolling Over a Car Loan Work? 

When you trade in your car, you take your car to a dealership where they will offer you a dollar amount to put toward a new vehicle. But if you haven’t paid off your old car loan, you don’t actually own your car — your lender holds the car title. In order to trade in the vehicle, you’ll need to pay off your old loan. If you don’t have the money to do that, the dealer might suggest rolling over the car loan instead.  Rolling over a car loan is when you combine the amount you owe on your current auto loan with a new loan for a new car. However, this increases the amount you owe since you are essentially combining the loans. It may result in negative equity, which is when the amount you owe on the loan is more than the car is worth.Recommended: How to Save Money on a Car: 13 Tips

How Much Negative Equity Can You Roll Over on a Car Loan?

How much you can roll over on a car loan typically depends on the amount of negative equity you have with your current car. For instance, long-term auto loans may lead to negative equity, as might excessive wear and tear on the car that causes its condition to deteriorate. So how much negative equity can you roll over? Generally, the more negative equity you have, the harder it may be to roll over on a car loan.  Lenders often use a loan-to-value ratio (LTV) to help them set a maximum loan amount. Many lenders won’t extend loans that are more than 125% of a car’s value. If you exceed that, you may not qualify for a loan.

Pros and Cons of Rolling Over a Car Loan

Before deciding to roll over your car loan, it’s important to carefully weigh the advantages and disadvantages.

Pros of Rolling Over a Car Loan

The possible benefit of rolling over a car loan is that you’ll get a new car. If your current car is in poor condition or needs costly repairs, this could be an option for you. But you may risk going into debt since you will still have to pay off what you owe on the old car and make the payments for the new loan as well. 

Cons of Rolling Over a Car Loan

The biggest drawback of a rollover car loan is that you’ll owe more money on the loan than your car is worth, a situation known as being upside down on your loan. This can be a financially precarious position to be in and could put you even further into debt. In addition, if your car is in an accident and gets totaled, your insurance company will likely pay only the amount equal to your car’s value. If you owe more than that amount, you’ll be out of a car and you’ll need to find a way to pay off the loan.Finally, rolling over a car loan to create a larger loan amount means that you’ll pay more in interest on the car loan over its term. That can make rolling over a car loan an expensive proposition.

Alternatives to Rolling Over a Car Loan

Because rolling over a car loan can be financially risky, many experts suggest avoiding it, if possible. Here are some other options to consider instead.

Paying Off Your Existing Loan

If you don’t need a new car immediately, and you have some savings, consider using the money to pay down your current auto loan so that you no longer owe more than the car is worth. This could get you to a point of positive equity, which means you could trade in your car for a new one without having to do a rollover.For instance, if your car is worth $16,000, and you pay down the loan enough so that you owe $14,000, the dealer would give you $2,000 when you trade in the car. You could use that amount as a down payment on the new car, which means you wouldn’t have to borrow as much with a new loan.However, think twice about using your savings if it will wipe you out. It’s important to have enough savings in the bank in case of an emergency. 

Refinancing Your Car Loan

When refinancing an auto loan, you take out a new loan, ideally with a lower interest rate or better terms, and pay off the old loan. A loan with a lower interest rate could lower your monthly payment, which could help your budget. And as you repay the new loan, you could work toward building positive equity in the car.Generally, the higher your credit score, the lower the interest rates you may qualify for when you refinance a car loan. If your credit score has recently improved, this could be a good time to consider refinancing.  

Sell Your Car Privately

The trade-in value of your car at a dealership is likely to be much less than the amount you could get if you sold the car on your own. Selling the car yourself could result in a greater profit for you, which you could use to help pay down your old loan. And if you don’t want to buy a new car right away, you might even consider leasing a car in the meantime. Do the math to see what makes the most sense for you financially.

The Takeaway

Rolling over a car loan could leave you in a precarious financial situation. If possible, try to avoid a rollover car loan and explore other options instead. For instance, you could sell your car privately or refinance the vehicle to help pay off your previous loan and get a new loan with better terms. If you’re researching car refinancing options, Lantern can help. By filling out one quick form, you’ll get offers from multiple lenders in our network so you can compare rates and terms.

Frequently Asked Questions

How do I roll over a car loan to a new one?
How much negative equity can you roll over into a new car?
What is the downside of rolling over a car loan?
Photo credit: iStock/ardasavasciogullari

About the Author

Austin Kilham

Austin Kilham

Austin Kilham is a writer and journalist based in Los Angeles. He focuses on personal finance, retirement, business, and health care with an eye toward helping others understand complex topics.
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