Can You Trade In Your Car If You Still Owe

Roll Over The Amount Onto The New Loan

The second option, and probably the most popular one, is to roll over that remaining balance onto the new loan. In the case of our example, that means that you would be rolling over the extra $5,000 that you still owe on the current car onto the new loan that youre taking for the new car. So if the new loan is $20,000, then you will now owe $25,000 for that new car.

This option could raise your monthly payment by a considerable amount and the main drawback is that youre still paying for a car that you already traded in. On the financial front, this really isnt the best option, however, if you dont have the extra cash and can afford the higher monthly payment, then this could be your best option.

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How Do You Trade In A Car That’s Not Paid Off

To trade in a car that’s not paid off, you’ll need to visit a dealership with your loan information, vehicle information, and proof of insurance. You may want to visit more than one dealership to compare offers. Be prepared to negotiate, as the price of the new car and the value of your current one are negotiable. If you have negative equity on your current vehicle, which means you owe more than your vehicle is worth, be cautious about rolling your negative equity into a new loan. Be sure the numbers make sense.

Ask For A Voluntary Repossession

If you simply can’t afford your car payments any longer, you could ask the dealer to agree to voluntary repossession. In this scenario, you tell the lender you can no longer make payments ask them to take the car back. You hand over the keys and you may also have to hand over money to make up the value of the loan.

Voluntary repossession allows you to return a car you financed without being subject to the full repossession process. This could spare you some credit score damage, though a voluntary repo could still be reported to the credit bureaus.

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Can I Change My Car Before The End Of My Finance Contract

This a question we are frequently asked at Evans Halshaw. Whether people are looking to simply upgrade their car or circumstances have led them to require a larger or more practical vehicle you’ll be pleased to hear the answer to the question is yes.

It doesn’t matter whether you have a car on Hire Purchase or Personal Contract Purchase , the process is simple.

Just Because You Trade In A Car For A New One Doesn’t Mean It’s A Done Deal

The big error in thinking among car buyers is that they think that just because they traded in their old car and no longer own the car, that there is no more responsibility to that car. The problem is like the old saying goes, no job is finished until the paperwork is done.

In this case, while you might no longer own the car, you do indeed still owe that loan until it is paid off in full. You can argue all you want with the bank that you sold your car to the car dealer. The bank could care less, because they have a contract for the loan to be paid back by you, that is written between the bank and you, no the car dealer.

Typically the car dealer does not take your place as the borrower they usually take your place as the owner of the car. Since they don’t want to take your place as the borrower, and if they are legit, they payoff the loan on your trade-in which should be less than your trade-in value. But again, the bank only recognizes you as their customer, as the person responsible for paying back the loan until it is paid off 100% and the lien is satisfied.

As far as the lender is concerned, the contract is between the bank and you, not between the bank and the car dealer. We’ve heard from people over the years who had their credit ruined over this because the lender will place a black mark on your credit report for being 30, 60, or 90 days late, on top of all the late fees and interest they will hit you up for.

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Maximizing Value On Your Trade

If you wont trade in a used vehicle for some time yet, note that several steps can help improve its value when the time comes.

Keeping your vehicle well maintained, ensuring quality parts and workmanship are used for repairs, storing and organizing maintenance and service records, and caring for your vehicles appearance can all help it hold more of its value for the long haul. This means youll get a higher trade-in offer when the time comes for a new car.

Note, further, that shopping around for trade-in offers is advisable. Some dealers may offer you more for your trade-in than others, and accepting a higher trade-in offer can help reduce or eliminate negative equity, too.

What Happens If I Still Owe Money On The Vehicle I Want To Trade

If you still have a loan for the vehicle you plan to trade in, there are steps you should take to carefully consider whether to take on new debt for another vehicle before you have paid off your old vehicle.

These are the steps you should take:

• Find out how much you still owe on your current vehicle. Get the payoff amount from your current lender. This is the amount it will take to pay off your existing loan, and it may be different from any outstanding balance listed on your statement or coupon book. This difference may be because of a prepayment penalty or the way interest is calculated
• Research your trade-ins value, so you will know if the amount you still owe on your trade-in is less than it is worth, make sure during any negotiations that you consider whether you are getting fair value for your trade-in and you are able to fully pay off the old auto loan.
• If you owe more on your current vehicle than it is worth and you roll the balance of your existing auto loan into your new auto loan, this could make the new auto loan much more expensive. Your total loan cost will be higher because you will be borrowing more than just the price of your new vehicle.

If you decide to roll the balance of your existing auto loan into your new loan:

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Consider Holding On To Your Car If:

Your loan is fairly new. There may be penalties that make the transaction an imprudent financial decision.

Youâve got negative equity. Even if you are far along in your loan agreement, this could still be the case if your car has a low residual value. Research is key here and how much of the gap you can stand to cover depends on your personal financial situation.

Your vehicle has been in an accident. Even if your vehicle typically holds its resale value, the condition of the car when you bring it back to the dealership will determine the value of the trade-in. Every repair the dealer must make is money out of their profits, and likewise money out of your pocket.

Your loan is almost paid-off and your car has low ownership costs. This means that your monthly payments will be reduced to gas and the occasional check-up if your car is healthy and well-maintained. Unless you really need or want a new car and are in a strong financial position to do so, youll save money by getting more mileage out of your current vehicle.

Does My Car Loan Disappear If I Trade In My Car

Your car loan doesn’t disappear if you trade in your car. However, the trade-in value of your car becomes credit towards your loan. This credit might cover the whole balance. If it doesn’t, your dealer will roll over your loan, combining the deficit with the amount owing on your new car. Consolidating what you owe into a single new loan helps you manage your payments better.

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Four: Check Your Direct Debit Date

Finally, if you’re paying for your current car finance by Direct Debit, it’s a good idea to check what date your payments are made as your settlement figure will continue to reduce each time you make a monthly payment.

Interested in upgrading your car but unsure whether to get a car on a PCP or HP agreement? Let’s take a look at both finance options…

If You Accept The Offer The Dealership Sends A Check For The Vehicle To The Lender

The lender removes the lien from the title, allowing the car to be sold. Having positive equity on your current loan, that is, you owe less than the car is worth, makes it easier to trade in than when you have negative equity. The balance you owe on the car that is getting traded in will be added to your new car loan.

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How Is The Trade In Value Of A Used Vehicle Calculated

If youre currently still making payments on your vehicle then a dealer will take the value of your vehicle as equity and put it towards your new vehicle.

Positive Equity

When your car is worth more than what you still owe on your car loan, youll have positive equity. Having positive equity is advantageous as the difference between what the car is worth and what you owe on it can be used towards purchasing a new car. For example, if your car is worth $15,000 and you still owe $10,000 on the loan. This means you have $5,000 worth of equity that can be put toward your new vehicle. On the other hand, you may have what dealers call negative equity.

Find out which cars have a high trade in value.

Negative Equity

Negative equity is when you owe more on your vehicle than its worth. For example, if you still have $8,000 left to pay off on your loan but your vehicle is only worth $7,000, you have $1,000 in negative equity. Heres the catch, some dealers will say that they take trade-in vehicles that have negative equity but more often than not theyre not being completely truthful. What these dealers do is take the vehicles but then add on the negative equity to your new loan thus increase the amount you owe and the interest youll pay.

Find out if you should trade in your used vehicle or not?

Refinance The Car Loan

If the issue with monthly payments is affordability you may want to look at refinancing your car loan. Qualifying for a new loan with a lower interest rate could save you money and potentially reduce your monthly payment.

It’s important to consider the new loan term, however. If you refinance into a longer loan term, your monthly payments may be lower. But you could still end up paying more in interest versus choosing a shorter car loan. Be sure to check the best car loan rates before going this route.

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Payoff Amount And Trade

If you plan to trade in a car you still owe money on, first contact your auto loan lender and ask for your payoff amount .

Price your car. Look up the current trade-in value of your car on a pricing guide.

You can use online pricing guides like Kelley Blue Book and Edmunds.

Compare values. Subtract the payoff amount from your cars current trade-in value.

Though the final trade-in price is negotiable, youll now have a sense of whether you have positive or negative equity in your current vehicle.

How Soon Can You Trade In A Financed Car

You can trade in a financed car any time, but you may want to wait a year or more especially if you bought a new car. Cars depreciate over time. A brand-new car can decrease in value by 20% or more within the first year of ownership, then loses value more slowly in the following years. Depending on the size of the down payment you made on your loan and how quickly your car has lost value, you may find that you have negative equity in the vehicle almost immediately.

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Is It Ever A Bad Idea To Trade In A Car With A Loan

There are several circumstances where it makes more sense to pay more off your car before trading it in. You might want to delay your trade-in if:

• Your loan is fairly new. Cars depreciate as soon as they leave the dealership. Waiting until you’ve had your car a little while helps the value even out. If you wait a little, you won’t take such a financial hit.
• You’ll get penalized. Some lenders charge prepayment penalties for paying out loans before the end of the loan period. These extra charges, spelled out in the car loan terms, help offset the interest your lender won’t get when you prepay. These penalties can be so steep it’s not worth trading in your car until the loan is repaid.

Can You Trade In A Vehicle That Isnt Paid Off

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If youre currently looking to trade in your used vehicle for something new, updated or something simply better suited for your lifestyle then you probably have a lot of questions. Equity, negative equity, trade in value and how all of that is calculated can be quite confusing especially if youve never traded in a vehicle before or if your vehicle isnt fully paid off. To help you navigate the process with ease, weve put together everything you need to know about how to trade in your vehicle, whether its fully paid off or not.

Learn how to check the history of a used car.

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How Negative Equity Works With A Trade

With rare exceptions, cars decrease in value with age. Depending on other factors, like accidents, repairs, or other damage, the value of a car may decrease even faster. If you borrowed money to buy a car, you might owe more on your car loan than its current value. When that happens, you have negative equity in the car. Some car dealers say you wont be responsible for the remaining balance on your old car loan when you trade in your old car. But that might not be true. Dealers sometimes just roll over the negative equity into your new car loan, so you still end up paying it.

Example

Say you want to trade in your car for a newer model.

• Your loan payoff is $18,000
• Your car is worth $15,000

You have negative equity of $3,000. That must be paid if you want to trade in your vehicle. If the dealer promises to pay off the $3,000, it shouldnt be included in your new loan.

But some dealers

• add that $3,000 to the loan for your new car
• subtract the amount from your down payment
• or do both

Either way, this increases your new loan amount and its monthly payments: not only would the $3,000 be added to the principal, but youd also be financing it .

Understanding how negative equity works in a vehicle trade-in can help you make a better informed decision about buying and financing a car. It also helps you recognize if claims in car ads that promise to pay off your loan are misleading.

How To Trade In Your Car When You Owe Money On It

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Yes, you can trade in a car with a loan. But proceed with caution and make sure you not the dealer control the transaction.

If youre trading in a car you still owe money on, youre looking at one of these two situations:

• You have positive equity. If your car is worth more than the amount you owe on your loan, youre in good shape. This difference is called positive equity and its like having money that you can apply toward the purchase of a new car.

• You have negative equity. If your car is worth less than what you still owe, you have a negative equity car also known as being upside-down or underwater on your car loan. When trading in a car with negative equity, youll have to pay the difference between the loan balance and the trade-in value. You can pay it with cash, another loan or and this isn’t recommended rolling what you owe into a new car loan.

Well show you how to handle each of these situations. But first, a little background.

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