Trading in a car when you owe more than it’s worth can feel impossible. For many Canadians, the situation seems completely stuck. As a result, people often believe they need to wait years until their loan balance finally drops.

At Approval Express, we see this concern every single day. Yet the truth might surprise you.

Yes, you can absolutely trade in a car with negative equity in Canada. In fact, nearly 30% of Canadians trading in vehicles right now are in this exact situation. So, if this is you, you’re far from alone. Moreover, when paired with the right lender, negative equity doesn’t have to trap you at all.

That said, not every dealer knows how to handle this correctly. Some will decline you immediately, while others may unintentionally make your situation worse. For this reason, understanding how the process really works protects you from bad deals. Additionally, it opens doors you may not even realize exist.

What Negative Equity Really Means When Trading In

Before exploring solutions, it’s important to clearly understand the situation. Negative equity—often called being “upside down”—means you owe more on your auto loan than your vehicle is currently worth.

Here’s a simple example:

  • Loan payoff amount: $24,000

  • Current trade-in value: $17,000

  • Negative equity: $7,000

When you trade in this vehicle, that $7,000 doesn’t disappear. Instead, someone has to absorb it. Typically, the amount is rolled into your new auto loan. In other words, you’re financing the remaining balance while purchasing a different vehicle.

This is where many Canadians feel uneasy. They assume rolling negative equity automatically makes things worse. However, through years of helping Canadians in complex credit situations, we’ve learned that this isn’t always the case. In fact, under the right conditions, it can actually improve your financial position.

Why So Many Canadians Have Negative Equity Right Now

If you’re dealing with negative equity, you’re in good company. Over the past few years, several factors combined to create a perfect storm.

Vehicle Prices Skyrocketed

Between 2021 and 2022, vehicle prices rose dramatically. Supply chain disruptions and chip shortages pushed costs higher across the board. As a result, the average new vehicle in Canada jumped from roughly $40,000 in 2019 to over $66,000 by 2024.

Meanwhile, those same vehicles have since declined in value. Although your loan balance remains high, your vehicle’s market value continues to fall. Consequently, the equity gap widens faster than many people expect.

Longer Loan Terms Became the Norm

Today, more than half of Canadian auto loans extend beyond seven years. Some even stretch to eight years or longer. While these extended terms lower monthly payments, they also create a major downside.

During the early years of the loan, most of your payment goes toward interest. As a result, the principal balance barely moves. Consequently, many borrowers remain upside down for far longer than anticipated.

Interest Rates Increased

Over the last few years, auto loan rates have climbed significantly. For most borrowers, rates rose from around 4% to between 7% and 9%. For those with credit challenges, rates of 15% to 25% are still common.

Because higher interest eats up more of each payment, less money goes toward reducing the actual debt. In effect, you’re standing still while your vehicle continues to depreciate.

Little or No Down Payment

Many buyers financed 100% of the purchase price, including taxes and fees. Starting with no down payment means starting underwater. The moment you drive off the lot, depreciation sets in. Without an equity buffer, you’re behind from day one.

According to Statistics Canada and industry data, total auto loan debt reached $626.6 billion in 2024. At the same time, average non-mortgage debt per Canadian now sits at $21,931. Unsurprisingly, auto loan delinquencies have also surpassed pre-pandemic levels. Clearly, this issue is affecting more Canadians than ever.

How Much Negative Equity Can Actually Be Rolled?

This is one of the most common questions we hear. The answer depends entirely on who you’re working with.

Traditional Banks and Captive Lenders

Most traditional lenders cap negative equity at roughly $5,000 to $7,500. Additionally, they usually require credit scores above 660. Because of strict loan-to-value limits, applications are automatically declined once the numbers exceed their guidelines.

What they usually say:
“Sorry, we can’t approve that amount of negative equity.”

Regular Dealerships

Typical dealerships work with only two or three lenders. In some cases, they may stretch approvals up to $10,000 of negative equity—provided you have strong credit. However, once those lenders say no, the dealer quickly runs out of options.

What they usually say:
“Unfortunately, we can’t make this work.”

Specialized Subprime Lenders

This is where the situation changes. Specialized lenders focus specifically on complex credit scenarios. They regularly approve $10,000 to $15,000 in negative equity. In some cases, even higher amounts are possible.

These lenders also work with credit scores as low as 400–550. More importantly, they understand how to structure deals that actually improve your situation rather than worsen it.

At Approval Express, we work with 40+ specialized lenders. By comparison, most dealerships have access to only a handful. Because of this network, we can often secure approvals and rate exceptions others simply cannot.