Financial and Consumer Affairs Authority of Saskatchewan

FCAA is Saskatchewan’s financial and consumer marketplace regulator.

Negative Equity

  • Negative Equity

    Are you looking to purchase a new vehicle? Have a trade-in? Are you still carrying debt from your previous vehicle purchase? Be careful, taking on additional debt could put you in a poor financial position. Consumers who roll their auto debt forward into a new loan may find themselves in a position known as negative equity, which is owing more money on a vehicle than the vehicle is worth.

    For information about negative equity, select from the options below:

     

     

    Look at the total cost, not just the monthly payment

    Consumers often desire a more expensive vehicle than they can actually afford. Low monthly payments spread out over a longer period of time give the impression of affordability, but actually represent a much higher cost overall.

    Don’t focus on a low monthly payment - know the total cost of the loan, including the price of the vehicle and the interest you will pay on the loan.

    For example, the monthly payments shown for the two vehicles below are almost the same. However, if you look at the length of the term, interest paid and the total cost; Option B costs significantly more:     

                                                                                                                                   

    Option A Option B
    Economy Car Mid-Size Sedan
    Price: $16,000 Price: $32,000
    36 month term 72 month term
    3% APR 3% APR
    $465/month $486/month
    Interest paid: $751 Interest paid: $3,006
    Total cost: $16,751 Total cost: $35,006

     

     

     

     

     

     

    Knowing the total cost of the transaction will allow you to make a more informed financial decision.

     

    Four tips to avoid negative equity

    1. Consider a shorter term loan to minimize the possibility of being in a negative equity position.
    2. Pay off existing vehicle loans. Avoid rolling negative equity forward into new purchases.
    3. Don’t be misled by low monthly payments. Consider the actual price of the vehicle and total cost of the loan.
    4. Have a budget in mind and stick to it.

     

    What can you afford?

    Knowing how much you can afford if circumstances change is important for making big financial decisions, like buying a vehicle. Crunch the numbers on a few scenarios and look at what kind of unexpected expenses you are able to afford.

    Having negative equity on your car loan could result in you defaulting on other financial obligations such as mortgage or credit card payments. This can affect your credit score and make it hard to get loans or credit in the future.

     

    Contact Consumer Protection Division

    If you have questions about negative equity loans, you can contact us toll free at 1-877-880-5550 or by email: consumerprotection@gov.sk.ca.

    Consumer Protection Division

    Suite 500, 1919 Saskatchewan Drive

    Regina, Saskatchewan S4P 4H2

    Tel: (306)787-5550

    Toll free: (877)880-5550

    Fax: (306)787-9779

    Email: consumerprotection@gov.sk.ca

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