Refinancing with negative equity

How much negative equity is workable

A small gap, under roughly ten percent of the vehicle value, is often absorbed into the new loan. Larger gaps usually require a down payment or a co-signer to get approved.

Ways to reduce the gap first

• Pay extra toward the principal for a few months before applying.
• Reduce the requested term so less interest is capitalized.
• Add a modest down payment to the refinance.
• Consider a co-signer to strengthen the file while you build equity.

Why refinancing still helps

Even with negative equity, moving from a very high rate to a lower one slows how fast the gap grows. Combined with a shorter term, it is the fastest realistic route back to positive equity without selling the car.

Who qualifies to refinance

Most Canadian drivers with an active auto loan qualify. The vehicle, the remaining balance and your payment history matter more than a perfect credit score.

• The vehicle is registered, insured and roadworthy, with no active insurance claim against it.
• The loan is an auto loan or a dealer-arranged finance contract, not a lease.
• You have made at least a few months of payments on the current loan.
• The vehicle is not already pledged as security on a separate title or payday loan.
• You live outside Quebec, where our lending partners do not currently operate.

What to watch for before you sign

A lower payment is not automatically a lower cost. Check these four things before you agree to new terms.

• The full cost of borrowing, not just the monthly payment: a longer term can lower the payment and raise the total interest.
• Payout penalties on your current loan, such as an early payoff fee or a discharge administration charge.
• Lender fees rolled into the new balance, which quietly increase what you owe.
• The vehicle value against your balance. If you owe far more than the car is worth, refinancing may not be approved without extra down payment.