Car Loan Equity Timeline Calculator

How it works

A car loan is underwater when the balance owed is more than the car is worth. Selling or trading the car then leaves a shortfall to pay. It happens when the car loses value faster than the payments reduce the balance, or when more was borrowed than the car was worth (tax, fees or a previous loan's shortfall rolled in).

The calculator follows both figures month by month. The loan balance after each payment is the present value, at the loan rate, of the payments still to come, the same figure an amortization schedule shows. The car's value starts at the figure you enter and falls at the depreciation rate you set for each year of ownership, spread evenly (geometrically) across the months of that year.

Equity is the value less the balance. The calculator reports the month from which equity stays at zero or above for the rest of the loan, how many months it is negative, and the largest shortfall and when it occurs. By the final payment the balance is zero, so equity is never negative at the end.

Formula

payment M = A × r ÷ (1 − (1 + r)^−n),   r = APR ÷ 12
balance after month k = M × (1 − (1 + r)^−(n − k)) ÷ r   (A at k = 0, 0 at k = n)
value after month k = V × Π over each loan year (1 − d_year)^(months of k in that year ÷ 12)
d = year-1 rate in year 1, years 2–3 rate in years 2 and 3, year-4-on rate after
equity = value − balance
equity stays at or above zero from month = 1 + the last month with equity < 0

Example

A $35,000 car with $36,000 financed (tax and fees included) at 7% for 72 months has a payment of $613.76. At 20% depreciation in year 1, 15% in years 2 and 3 and 12% after, the car is worth $28,000 after a year, while $30,996.32 is still owed: $2,996.32 underwater, the largest shortfall on this loan.

After 34 payments the balance ($20,864.63) is still above the value ($20,785.45). After 35 payments the value ($20,505.84) passes the balance ($20,372.58), so equity is positive from month 35 on. The loan is underwater for 35 months, months 0 to 34. When the loan is paid off the car is worth $13,786.18 under these rates.

Assumptions and limitations

• The depreciation rates of 20%, 15% and 12% are typical rule-of-thumb figures, not a forecast for any model. Actual values depend on the model, mileage, condition and market; enter your own rates.
• The balance assumes a fixed-rate, simple-interest loan with every payment made on time and none extra. A lender's payoff quote includes interest accrued since the last payment and governs.
• Equity compares the car's estimated value with the balance; selling costs and the price difference between a trade-in offer and a private sale are not included.
• This is an estimate, not financial advice.

Frequently asked questions