What Is Negative Equity On A Car And Why So Many Canadians Have It 2

If you have a car loan in Canada, you probably expect each payment to move you closer to owning your vehicle. For many drivers, especially in British Columbia, Alberta, Saskatchewan and Manitoba, it does not feel that way at all. The balance seems stuck. Trading in feels impossible.

That feeling often comes from negative equity, sometimes called an upside down loan. In simple terms, it means you owe more on your auto loan than your vehicle is worth. Canadian regulators and auto finance guides use almost the same definition.

Here are four key things to understand about negative equity and what it means for Canadian drivers.

What negative equity means for a Canadian driver

Picture a simple example. You still owe 24,000 dollars on your car loan. When you check realistic resale values for the same year, make, model and similar kilometres, your vehicle is worth about 17,000 dollars.

The 7,000 dollar gap is negative equity. If you sold the vehicle for 17,000 dollars tomorrow, the sale would not fully pay off the loan. You would still owe money after the car is gone.

The same idea applies whether you drive a compact in Winnipeg or a diesel truck in northern Alberta. Any time the loan balance is higher than the value, you are in negative equity. Regulators such as OMVIC in Ontario and the Vehicle Sales Authority in BC warn that this is common, especially with long loan terms and small down payments.

Why negative equity is so common in Canada

Negative equity is not just about one deal at one dealership. It comes from how auto finance works across the country.

Longer loan terms

Over the last few years, very long car loans have become normal in Canada. A recent summary of car loan data estimates that about half of new loans are 84 months or longer, and roughly ten percent reach 96 months.

The Financial Consumer Agency of Canada (FCAC) and several provincial regulators warn that these extended terms increase the risk of negative equity. Payments look smaller each month, but you pay interest for longer and pay down the principal more slowly.

Higher prices and bigger loans

Vehicle prices climbed sharply after 2020. Many Canadians stretched their budgets, put less money down, and financed taxes and fees.

Equifax Canada’s Market Pulse reports show that average non‑mortgage debt per active credit consumer reached around 21,800 to 21,900 dollars in late 2024 and early 2025. Auto loans were a major part of that increase.

Higher prices plus bigger loans plus long terms make it much easier to end up owing more than the vehicle is worth.

Depreciation working against you

Every car and truck loses value over time. The FCAC notes that depreciation is fastest in the first few years. Long term loans make it harder to stay ahead of that drop.

If you drive a lot of kilometres, use the vehicle for work, or own a model that changes often, your vehicle may lose value quickly. When the value falls faster than the loan balance, negative equity appears.

For drivers in BC, Alberta, Saskatchewan and Manitoba, this mix is common. Larger trucks and SUVs, longer commutes and higher loan amounts all push in the same direction.

How to check if you are upside down on your car loan

You can get a rough answer in a few minutes.

First, find your current loan balance. Look at your latest statement or log in to your bank or lender. Note the payoff amount or the principal remaining.

Next, estimate a fair value for your vehicle in the Canadian market. Search online listings for the same year, make and model with similar kilometres. Check a few results to see what people are actually asking. You can also use valuation tools such as Canadian Black Book to get a range.

Now compare the two numbers. If the loan balance is higher than the value, you are in negative equity. When the numbers are close, you have very little equity and are sensitive to further drops in value. If the vehicle value is comfortably higher than the loan, you have positive equity and more flexibility.

Canadian sites such as CarDealCanada and CarRefinancing.ca use this same simple comparison. They also report that many trade‑in customers only discover they are upside down when a dealer does this math for them.

What your options look like if you are in negative equity

Finding out you are upside down on your car loan can feel stressful. It does not mean you are out of options. Canadian regulators and auto finance experts usually point to four main paths.

One option is to keep the vehicle and keep paying. If the payment fits your budget and the vehicle suits your life, staying the course can slowly shrink the gap. Adding small extra payments when you are able can speed that up.

Another route is to refinance the loan. You replace the current contract with a new one that might have a different rate or term. Refinancing does not erase negative equity, but it can make the payment more realistic if your credit or the interest rate environment has improved. Canadian lenders and advice sites describe this as a tool, not a magic fix.

A third path is to trade in the vehicle and roll some or all of the shortfall into a new loan. Dealers and finance companies across Canada do this every day. OMVIC and the FCAC both warn that this must be handled with care. Rolling old debt into a long new loan can make the next negative equity problem larger if the numbers are not clear.

In some cases the auto loan is only one piece of a much bigger debt puzzle. When credit cards, lines of credit and other loans are also under strain, speaking with a non‑profit credit counsellor or a Licensed Insolvency Trustee may be the most realistic step. Equifax’s data on rising non‑mortgage delinquencies suggests more Canadians are reaching that point.

Moving forward with Approval Express Canada

At Approval Express Canada, we talk to people in negative equity situations every day, especially in Western provinces like BC, Alberta, Saskatchewan and Manitoba. Many start by saying, “I think I am upside down on my loan, but I do not really understand how bad it is.”

Our first goal is clarity. We look at your vehicle, your kilometres and your payoff amount. We compare that with real Canadian market values, then talk about your budget and your plans.

From there, we help you weigh the options you just read about, using your actual numbers. For some people that means keeping the vehicle and planning a future change. For others it might mean restructuring the loan or exploring a trade in that does not dig the hole deeper.

You stay in control. Our role is to explain the trade offs in plain language and help you avoid quick fixes that cause bigger problems later.