Almost any car, including one that has a loan attached to it, can be traded in for a new set of wheels. An automobile that has a loan on it is one that you must continue to make monthly payments on.
It is possible to trade in your car before the loan is paid off, but there are a few things to think about before you do so.
We’ll cover all you need to know about trading in a car that is still being paid for in this guide, along with some frequently asked questions.
Find out how much your car is worth
The value of the car you trade in is deducted from the cost of the new vehicle. However, the dealer takes over and pays off the loan when you trade in an automobile with a loan.
The first thing you should do if you want to trade in a car that you still owe money on is get in touch with your auto loan lender and inquire about your payoff amount, or the remaining balance on your loan. This amount may represent a small increase over the balance you have left because it includes all interest that is owed.
Next, use a pricing guide to ascertain your car’s current trade-in value. Online price guides such as Edmunds and Kelley Blue Book are available for use. Next, deduct the payoff amount from the current trade-in value of your car to determine if you currently have positive or negative equity in it. However, the final trade-in price is negotiable.
Trading in a car with positive equity
Let’s say your car is worth $7,000 when you trade it in and you owe $5,000 on it. You can now use your $2,000 equity to pay for your next car directly.
The amount that is negotiated for your next car is reduced by this equity. You can use any extra or saved money to make a down payment in addition to any equity applied to the car purchase to lower the total loan balance.
However, you will have to finance the remaining amount of the car’s purchase price with cash or an auto loan. The agreement for your new vehicle will include the trade-in’s value. Ensure that you receive the entire sum that you and the other party negotiated.
Trading in a car with negative equity
Should your auto loan be upside-down, you bear the responsibility of covering the shortfall between the amount you owe and the car’s market value. Depending on how much you owe, this can be costly. But there are some alternative options to consider:
Delay the trade-in: If you don’t need a new car right away, it could make sense to wait until you have positive equity or until you have paid off the loan before buying a new car.
Roll over the negative equity: Your dealer may advise you to roll over any excess debt into the loan for your next vehicle if you owe more than the vehicle is worth. Although convenient, this is frequently a bad idea since it will put you in a worse situation with the new loan right away. Additionally, it indicates that you’re taking out a bigger loan and paying more interest.
However, trading in your car can help you downsize to a less expensive car with a lower interest rate if you need a car but lack the funds to pay off the negative equity and are struggling to make your current car payments. This option can make your payments more manageable.
You must give the dealer your trade-in along with the amount of the negative equity in such a situation. For instance, rather than being responsible for the full $10,000 if you owe $10,000 on a car that has a $9,000 trade-in value, the trade-in credit will pay off the majority of the loan, and you will pay the dealer the $1,000 difference.
Final steps
Keep in mind that there is a lot of room for negotiation on both the car’s price and the trade-in value. Separate negotiations for the trade-in and the new car purchase are the best ways to guarantee that you receive a fair price for both.
You must obtain a fair price for both the trade-in and the new car, as well as a favorable interest rate on your new loan, in order to get an excellent deal overall. Use a car loan calculator to estimate these figures and determine what your new monthly car payment will be before you visit the dealership.
After you’ve completed negotiating the trade-in and your car purchase, carefully go over the contract to make sure all of the terms you agreed upon are documented. Double-check the numbers with your own calculator.
Next, confirm that the loan for your trade-in has been settled a few weeks after the transaction has been finalized. Usually, the lender also provides proof that the loan has been paid off.
FAQ
Is it possible to trade in a car that isn’t paid off?
Is it possible to trade in a car with a loan? One of the most frequent queries we get is, “Will a dealership buy my car if I still owe?” Yes, you can trade in a car even if you are currently making payments on your auto loan.
How does trading a car in with a loan work?
The dealership gets in touch with your lender: Usually, the dealership will get in touch with your lender and use the credit from your trade-in value to fully repay your initial loan. After the trade-in credit is applied, if you still owe money, that amount will be carried over and added to the balance of your subsequent auto loan.
Is trading in a financed car worth it?
However, if you have a balance on your current auto loan, you may be encouraged to roll that balance into a new loan, which will increase your total loan costs and the interest you’ll pay over the life of your loan. Trading in a car generally helps you reduce how much you’ll need to borrow when buying another vehicle.
What does your credit score need to be to trade in a car?
Your credit score will influence the interest rate you can get on the next car you buy, but it won’t affect the trade-in value of your current car. Before you start, check your credit score. If it’s in the mid-600s or lower, think about improving your credit before moving further.
Read More :
https://www.nerdwallet.com/article/loans/auto-loans/trade-in-car-when-you-owe-money
https://www.progressive.com/answers/trading-in-car-with-loan/