Negative Equity & Car Leasing

Negative equity can pose a significant financial burden that makes it difficult to buy or lease your next Calgary or Woodbridge ride. But exactly what is negative equity? And can you roll negative equity into a car loan or a new lease agreement? If you owe more on your vehicle than it is currently worth, these are important questions worth asking. Fortunately, Pfaff Leasing has the answers. Find out everything you need to know about negative equity and car leasing below.

What is Negative Equity?

So, just what is negative equity? Negative equity occurs when the amount you owe on your car loan exceeds the current market value of your vehicle. It typically develops as the result of depreciation, the natural decrease in a vehicle’s value over time because of aging, wear and tear, and other factors. Depreciation is an issue that impacts every vehicle as soon as it is driven off the lot. If you want to sell or trade-in your vehicle before paying the loan off in full, negative equity can be a major roadblock. For some, leasing a car might seem like a way to manage or lessen the burden of negative equity.

Can You Roll Negative Equity Into a Car Loan or Lease?*

When it comes to auto loans, you can roll negative equity into a car loan, but it increases the risk of getting further upside-down on what you owe. When it comes to car leasing, you are essentially paying for the portion of the car’s value that you use during the lease term; in other words, you are paying for its depreciation. As a result, lessees tend to enjoy lower monthly payments than traditional car loans.

For those confronted with the challenges of negative equity, leasing might sound appealing, mainly because some dealerships allow the remaining loan balance on the old vehicle to be rolled into the new lease agreement. But there are many potential long-term consequences with this option.

• Higher Payments: Adding the negative equity from your previous loan to a lease increases the overall lease cost. You will undoubtedly have higher monthly payments and may be charged additional fees. And if you exceed mileage limits or wear-and-tear restrictions, you could be saddled with even more charges at lease end.
• High Risk of Default: Given the added financial stresses of rolling negative equity into a car lease, you are at greater risk of defaulting on your payment obligations, which can adversely affect your credit for years to come.
• Less Negotiating Leverage: Having negative equity can minimize your negotiating power, and there may limited—or no—incentives, deals, or special offers available to you.

Lease Your Next Vehicle Near Toronto

At Pfaff Leasing, we are your premier source for vehicle leasing in Woodbridge. We do not permit negative equity in our leases. If a customer has negative equity, they must cover that cost with a cash down payment at lease inception. For more information, feel free to contact us, and you can always continue your research online. We are here to help make the leasing process transparent and stress-free, so do not hesitate to reach out and explore your options with our team.

Pfaff Leasing does NOT permit negative equity in our leases. If a customer has negative equity they must cover that with a cash downpayment at lease inception.