Car Loan Rollovers: What to Consider Before You Refinance

If your current car is financed but you’re ready for a new one, you might be considering whether you should roll over your car loan. To roll over a car loan means trading in your car before it’s paid off, then adding that balance to a new car loan. You might also have the option to roll over negative equity during auto loan refinancing.

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Although rolling over a car loan is an option when you want to get out of your current loan, it’s not always the best route for long term savings. Learn more about when to roll over a car loan.

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Key takeaways

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• A car loan rollover is when you take the unpaid balance from your current car loan and add it to a new loan during a refinance or trade-in. 
• Rolling over negative equity can increase your long-term costs, but it’s one option to exit a loan or car situation you’re dissatisfied with.
• In some cases, a negative equity refinance can be helpful, but you should carefully weigh the costs of all your options.
• Alternatives to a car loan rollover include paying off the old loan and negotiating a good sale price on your current vehicle.

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What it means to roll over a car loan

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When you roll over an auto loan, you add an existing loan balance to a new loan. There are trade-in rollovers, where you roll over the loan to buy a new car. There are also refinancing rollovers, where you keep the car but refinance to a different loan. 

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Refinancing a car that’s worth less than you owe is negative equity car loan refinancing. With negative equity, the car is worth less than the remaining balance of the loan. Negative equity is also called being “upside down” or “underwater” on a loan. 

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Example

Here’s how a rollover works. 

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Say you have $30,000 remaining on your car loan. Meanwhile, the car has depreciated over time and is worth $25,000. If you trade in the car for $25,000, you’ll still owe $5,000 on your car loan. 

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You could roll that $5,000 over into a car loan for a new car. If the new car costs $25,000, you'd need to borrow $30,000 to cover the $25,000 purchase price of the car and the $5,000 negative equity you rolled over.

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It’s worth being cautious with a rollover because it increases what you owe, adds interest to your old debt, and leaves you upside down on your new loan as well.

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Weighing the costs and benefits of a negative equity rollover

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A negative equity refinance could be a useful tool in some situations. 

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• You need a lower payment right away: You might consider it if your circumstances have changed and you need a lower payment to better manage your budget.
• You’re about to fall behind on payments: Similarly, if a refinance means the difference between having your car repossessed or keeping the car with a new loan, it could be worth it.
• You need to remove a cosigner: In cases where you need to remove a cosigner, perhaps due to divorce or other reasons, you might find it worthwhile to refinance even with negative equity.
• You plan to keep the car long term: If you know you’re going to keep the car for as long as possible, it might be worth refinancing, since you won’t be selling the car and hoping for a profit.

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Although a negative equity refinance might help you out of a tight spot, it does have some drawbacks. Most people find that rolling over a loan is an undesirable move because it increases your long-term costs. 

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Alternatives to auto loan rollovers

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Consider some alternatives that might help you in getting out of an underwater car loan. Just remember to evaluate all potential costs when you compare options.

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• Pay off your current car loan: If you can, pay off your current car loan, whether you make extra payments to bring down the balance or refinance.
• Sell the car privately: Selling the car on the used car market will often fetch a higher price than if you trade it in to the dealer. Ideally, you’ll sell the car for enough to get out from under the loan before buying your next car.
• Negotiate with the dealer: If you do decide to trade in the car, negotiate with the dealer for a higher value, or ask about any special trade-in offers.
• Request a loan modification: If you’re experiencing financial hardship, contact your current lender to ask whether a loan modification is possible. A loan modification keeps the loan but changes some of the terms to help you maintain payments.

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Compare auto loan offers

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Sometimes, you need a new car before you were expecting to. Before you roll over a car loan, explore other strategies that might help you reach your goals. Use an auto loan refinancing calculator to compare different loan amounts, interest rates, and term lengths. You’ll see how changing these factors can affect your monthly costs as well as your overall costs. 

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And remember to compare multiple offers when considering new auto loans or refinancing options. Look at all the terms of each loan, not just the interest rate, to find the best loan for your situation.

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FAQs

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Below are some of the most frequently asked questions about rolling over a car loan.

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How does rolling over a car loan work?

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A rollover applies the unpaid balance from one loan and adds it to a new loan. This carries the negative equity forward to a new loan.

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How much of a car loan can you roll over?

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The amount you can roll over depends on the lender. The lender might cap the amount based on the value of the vehicle, keeping the loan-to-value ratio (LTV) within set limits. Your credit history could also affect how much the lender is willing to roll over.

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Will a dealership roll over a loan?

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Yes, dealerships are often willing to roll over a car loan when you purchase a new car. Dealer financers profit from collecting more interest on a larger loan amount.

Is rolling over a car loan bad for credit?

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Your credit score won’t take a hit from a car loan rollover. The effect will be the same as any other loan or refinance. 

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Can refinancing help if I owe more than my car is worth?

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Refinancing may lower your monthly payment, helping you avoid missed payments and default. You might be able to save on interest costs if you get a lower rate. But refinancing doesn’t get rid of negative equity.

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