How to Avoid Negative Equity in Your Car Loan

By John Hayden

To many cash-strapped families struggling to avoid negative equity  in the Maritimes, it’s no surprise that the household debt-to-income ratio is among the world’s highest. At year-end 2021, Canada’s credit market debt hit an all-time high, topping 186% of disposable income in Canadian homes, according to Statistics Canada.

However, reputable auto financing firms  like Hayden Auto focus on ensuring that Canadians have the chance to buy the perfect vehicle for their needs at any time, without busting their budgets.

Whether a buyer’s looking for a snappy roadster, a rugged workhorse, or a family runabout, a well-trained salesperson is a vital ally throughout the entire vehicle financing process, helping streamline auto loans, with fast pre-approval procedures, simplified paperwork, and expert advice for all.

Planning for Good Value Vehicle Financing

When you’re thinking about buying a vehicle, there are several ways to avoid drowning in debt a few years down the line. Here are some life-saving hints from our certified car loan agents:

  1.  Be realistic. We’d all like a top-of-the-line model, but financial constraints and family demands take precedence. Instead, start out by looking at the simplest options that meet your needs.
  2. Limit your searches to makes and years that fall within your comfortable monthly repayment capacity. Think about whether you really need off-road capacity. Or is low fuel consumption more important for your budget?
  3. Bulk up your down payment, saving up for a few months if necessary. Typically, 20% is the least you should put down to avoid your car loan going underwater in a few years, when its trade-in value is less than the amount you still owe. For added security, set aside enough to pay all the taxes, title, and licensing fees in cash, instead of rolling them into your vehicle financing agreement.
  4. Look for cashback rebates and generous trade-in prices on your current wheels, using both to reduce the amount you borrow. As an added benefit, this also helps offset higher interest charges for buyers with low credit scores.
  5. Certified models selected from our Used Car Lot have already depreciated by 20% or more during their first year on the road. Consequently, their lower ticket prices lessen the chances of going upside down, when your vehicle is depreciating faster than you are paying back your auto loan.
  6. Try to fit a three-year car loan into your budget, even if it means downsizing your dreams for a while. At most, extend it to five years, if you really have to.

Avoiding Underwater Auto Loans

About a third of Canadians are already trapped in this debt spiral.  This means they owe more on their auto loans than their cars are worth on the market. Making this situation even worse, a vehicle is a steadily depreciating asset that paradoxically demands heavier investments to keep it on the road as it ages.

  • Think twice about zero down offers, unless your credit is excellent and your income stable. ‘Zero down’ simply means taking out a larger (and often longer) loan, usually at higher interest rates. As a result, you’ll pay thousands of dollars more for your car or truck over its lifetime, with higher odds of ending up with an underwater auto loan.
  •  Opting for shorter rather than longer auto loans is a sure money-saver. Although more than 50% of Canadians are jumping on this new longer-term vehicle financing trend of seven or even a whopping eight years, it may not be the best idea in financial terms.
  •  Affordable monthly payments (sometimes as low as $ 50 a week) are tempting at first sight. But when totting up the interest over seven or eight years, unwary buyers are spending far more than the original ticket price, with an outstanding balance (known as negative equity) that’s higher than the vehicle’s market value.


If your auto loan is already underwater (or teetering on the brink), don’t panic! Instead, ask Hayden Auto about the best-rate solution for this problem and rebuild your credit score.

    Looking For Quick & Easy Financing?

    We know how to find the best vehicle for your situation, and have you leave the lot with a smile on your face.

    Apply now!