What happens if your car has negative equity? A viral video lets people know that sometimes your car is worth less than the amount you owe on your auto loan.
Car finance expert Shawn (Goatforreal) Payne explains just how negative equity can affect your car sale—and why a lease might be better—in a video posted to his TikTok account on Nov. 11.
The video has now garnered 1.1 million views and counting.
The customer would be better off leasing
In the video, Payne explains to a sales rep why a customer “needs to lease” due to negative equity.
The car in question, a Kia, had a brand-new sticker price of $33,425. Payne explains to the rep that anyone can buy the vehicle for that price.
He claims that with a dealer’s discount, it’s likely a customer can buy the car for $31,000 or lease it for $499 a month.
Payne claims that with 4,000 miles on it, he couldn’t offer a trade-in price anywhere near that.
“I have to look at it like we’re gonna sell this to a customer like it’s pre-owned,” he states. The customers “aren’t gonna buy for close to what they could buy a new one for.”
“We have to appraise this thing somewhere around $27,000 and $28,000. Price it at $29,990,” he notes.
He then claims, “If I give him the $30,000 he wants for it, I gotta price it at $31,900, $32,900. The customer would be better off just going to buy a brand new one.”
Payne’s solution
Payne suggests doing a lease on a Honda Prologue.
“‘Cause how much is off on the Prologues right now on a lease?” he asks the sales rep.
“You get the $7,500 credit [for trade-in], and I think that there’s a $6,000 rebate, so there’s $13,500 in incentives,” he claims.
“He could probably lease that car for $450, $500 a month,” he states.
Payne states the rep should convince the customer to take the lease on the Prologue.
“It’ll suck up his negative equity,” he concludes.
The Daily Dot reached out to Kia and Honda via email for a statement.
What is negative equity, and how do you avoid it?
Simply put, if your car’s current value is less than the amount you owe on your car loan, you have negative equity in that vehicle.
According to Car and Driver, “An automobile loses around 20% of its value in the first couple of years of ownership. This means that you may end up owing more money than your car is worth before you pay off your loan.”
If you made a low down payment on your car loan, or if you have unusually high mileage, or if the vehicle has unusually high wear and tear on it, you may have negative equity.
In October, online automotive reference site Edmunds reported that negative equity, also known as an “upside down loan,” is on the rise.
“Consumers who are underwater on their car loans owe more money than ever before. The average amount owed on upside-down loans climbed to an all-time high of $6,458, compared to $6,255 in Q2 2024 and $5,808 in Q3 2023,” the site stated.
“A seven-year auto loan is a one-way ticket to negative equity if you know you’re not the type of person to keep a vehicle for that long,” said Edmunds director of insights Ian Drury.
Edmunds states that keeping a vehicle for “as long as possible while keeping up with regular maintenance” is the key to avoiding negative equity.
“Find a car you really want and like, because if you don’t, you’ll probably end up making the same mistake of trading in your newish vehicle too soon,” it continues.
What the viewers had to say
Some viewers praised Payne’s easy-to-understand explanations.
Gavin Estrada (@g.e2189) commented, “As a former salesmen [sic] you are probably one of the BEST managers/finance guys I’ve ever seen. My managers wouldn’t have worked this hard to help someone ngl.”
“Now this is actually trying to help a customer,” another viewer noted.
“Love the explanation and not talking down to the sales rep or about the customer like some other tik tokers out there,” another added.
However, some viewers were not impressed with the alternative of a Prologue.
“We are leasing the prologue at like 220-240 [a] month and we can’t get rid of them,” HATE (@edc_boos) noted.
Another viewer noted, “Great manager, but definitely don’t buy a Prologue.”
The Daily Dot reached out to Payne via email and TikTok messenger for further comment.
Internet culture is chaotic—but we’ll break it down for you in one daily email. Sign up for the Daily Dot’s web_crawlr newsletter here. You’ll get the best (and worst) of the internet straight into your inbox.
