Monday, November 28, 2022

How To Trade In A Car With A Loan

Don't Miss

Frequently Asked Questions How To Trade In A Car

How to Trade in a Car you Owe Money on or is NOT Paid Off (Former Dealer Explains)
  • Can I trade in a car if I have bad credit?

    You can, though you might not have as many financing options if you need to take out a new car loan to cover the difference. Otherwise, the dealership likely wont run your credit since you wont need to borrow to pay for your new car.

  • Is it possible to trade in a leased car?

    You can and you have a few options. You can sell your lease to the dealership in exchange for a new lease. Or you can sell your lease to a dealership and purchase a new vehicle. If the buy-out cost of your lease is worth less than the new car, you might have to cover the difference.

  • Can I trade in a car I just bought?

    You can, but it might not be the best idea if you have a new car you likely owe more money on the car than its worth since cars depreciate at a faster rate in the beginning. Research your potential trade-in value before you make a decision.

How To Trade In A Car That Is Not Paid Off

It is not uncommon to trade in a car before you pay it off. Provided you have positive equity, you can turn your current vehicle into a down payment. But even with negative equity, trading in your car for something cheaper can help you recoup some of your losses.

Either way, there are a few essential steps to trading in your car when you still have a loan.

How To Trade In A Car With A Loan

If your are ready for a new car, it is possible to trade in your existing car — even if it still has a loan. The dealership will pay off the car loan when you trade in your car for a new one. The biggest roadblock will be if your current car is worth less as a trade in than the loan balance. This is called being “upside down” in your current car.

Don’t Miss: Do Car Dealerships Use Equifax Or Transunion

Ways To Pay Off A Financed Car In A Private Sale

Thinking of selling your financed car privately? Here are 3 options for paying off your current loan:

  • Use savings, another loan or a credit card
  • 1. Sell your car and use the money to pay off the loan

    This is the easiest option for selling a financed car when moneys tight, but you need to earn the trust of your buyer for them to give you their money so that you can pay off the loan.

    • Be direct and honest. Let the buyer know you owe money on the car and that youll pay off the loan in full immediately after the transaction. For peace of mind, offer to bring the buyer to the bank or lender and clear the debt in front of them. Get a copy of the vehicles history report from a company like CARFAX and show the buyer that there is no outstanding lien on the car. If youre selling a car in Ontario, the Provincial Government actually sells used vehicle information reports for a nominal fee of about $20.
    • Profit or loss? Look at how much you can sell the car for and how much itll cost to repay the loan fully including any early repayment fees and other costs. This will give you an idea if youre going to gain or lose money from the sale.

    How much should I sell my car for?

    2. Refinance your car loan before selling

    Need extra cash? Refinance instead of selling.

    Cons Of Trading In A Car

    Trading in a Car with a Loan: Everything You Need to Know

    There is one major downside to trading in your car, though: You probably wont make as much money as you would if you sold the vehicle yourself. The car dealership wants to make a profit by reselling your used car to another driver, so youll miss out on that extra chunk of money.

    Trading your car in might also limit your options when it comes to buying your next car. If youre planning to use the value of your old vehicle as the down payment on a new one, youll have to purchase your next car from a dealer willing to buy the old one.

    Don’t Miss: How To Stop Geico Insurance

    How To Trade In A Car With A Balance On It

    Trading in a car with a balance on it is often a costly undertaking, though it can be done. You will still be financially responsible for the outstanding balance on the loan. However, a new loan that incorporates the old one can result in more financially advantageous terms, particularly if your new loan carries a lower interest rate.

    Find out the current value of your vehicle using a site like Kelley Blue Book or Edmunds.com. This gives you greater negotiating power. For example, if you owe $5,000 on your car, but the trade-in value is $6,000, that extra $1,000 can be factored in when negotiating a price on a new vehicle.

    Tell the car salesperson youre working with that youre carrying a balance on your existing vehicle that you want to roll into a new loan. This will help the dealerships finance department when it comes time to qualify you and negotiate your loan.

    Stick to your guns and be firm when maintaining your financial objectives. Be prepared to walk away if you cant reach a price youre comfortable with.

    Tips

    • If your car is worth more than you owe on your loan balance, consider selling it rather than trading it in and use the proceeds for a down payment on your new vehicle.

      Check out auto loans from a bank or credit union before going to a car dealership. You might get better rates and terms.

    References

    Can You Trade In A Car That’s Not Paid Off

    Yes, trading in a financed vehicle is possible. However, how much you owe on your current loan and the car’s market value play a role in what you receive in return.

    When trading in a vehicle with a loan, what you receive depends on how much equity you hold. Positive equity means the value of your car exceeds the remaining payments on your loan. Negative equity, also known as being “upside-down” or “underwater on a loan,” is when your car is worth less than the remaining balance.

    If your loan payoff is $3,000 and your current vehicle’s market value stands at $10,000, you have positive equity.

    But if your payoff amount is $8,000 and the market value of your vehicle is $5,000, you have negative equity.

    When you trade in a vehicle with positive equity, you can use the resulting funds as a down payment toward your next one.

    But if you’re underwater on your loan, you won’t receive any money for trading in. You have several options in this situation.

    First, you can simply pay the difference between your remaining loan amount and the market value when trading in. So if you owe $7,000 and your vehicle’s worth $6,000, you would pay $1,000.

    Another option is rolling over the negative equity into your next loan. While this may be convenient, it also increases your total amount financed.

    If you don’t mind waiting a while, simply paying off the remainder of your loan makes you the rightful owner of your car, ensuring you receive money when you decide to trade it in.

    Recommended Reading: Can I Use My Carecredit Card For Gas

    Is It Smart To Trade In A Car With A Loan

    Whether trading in a car with a loan is the right decision for you depends on your circumstances. Trading in a car with a loan might be the smartest thing if:

    • Your car has high ownership costs. If your car uses a lot of gas, often needs repairs, or needs specialty parts, it can be financially savvy to trade it in. Choose a smaller car or a more modern one to save money in the long run.
    • The dealership has great incentives. Dealers often have promotions that make trading in your vehicle more attractive, according to Birchwood Credit. For example, many dealers have end of financial year deals to clear old stock and make way for new models.
    • You’ve done your research. If you’ve researched your options and know what you want, it’s often smarter to trade your car in rather than wait. Visit your dealer to crunch the numbers and see whether you can strike a deal you’re happy with.

    Advantages Of Trading In A Car

    How to Trade in a Car that is not Paid Off | MONEY $AVING TIP$

    When deciding the best way to get rid of a car, there are several factors to consider. Before attempting to sell the car yourself, understand how a trade-in can help.

    1. You Only Deal With the DealerIf you trade in your car, the dealer handles the entire transaction from start to finish. All you need to do is show up, negotiate the deal, and youre one step closer to buying a new car. While there are definitely benefits to selling a car yourself, trading in a car is the better option if you simply dont have the time or desire to market your vehicle.

    2. Its Fast and ConvenientPrivate party sales take time and effort: Theres the task of advertising the car, meeting with potential buyers, and transferring ownership. It can take several weeks or even months to find a buyer. On the other hand, when you trade in your car, you can get rid of your old car in a day or two.

    3. It Reduces the Price of Your New CarIf you own your car outright, the dealership will apply your trade-in amount to your new vehicle. For example, if you purchase a car for $25,000 and the dealership gives you $6,000 for your trade-in, you only need a loan for $19,000. And because the dealer knocked several thousand dollars off the final price of your automobile, you pay less in sales tax.

    You May Like: Where Can I Use Synchrony Car Care

    Trade In Your Car With A Loan For Cheaper Car

    If you ever find yourself a situation where you can no longer afford your car payments, it’s possible to trade in a car with a loan for a cheaper car.

    If you ever find yourself in a situation where you can no longer afford your car payments, it’s possible to trade in a car with a loan for a cheaper car. Be prepared to contact your lender, clearly explain your situation, and have a budget set up with a dollar figure that you can afford to pay monthly.

    Can You Trade In A Leased Car

    It is possible to trade in a car that youre currently leasing, and it works in a similar fashion to trading in one with an outstanding loan balance. Youll first need to contact the leasing company, or check your leasing statement, to see what the cars payoff or buyout value is. Thats the amount you would have to pay if you wanted to buy the car outright before the end of the lease. Youll also want to find out if there is an early termination fee on your lease.

    Once you have that information, you can contact the dealership where youre buying your new car and have it work directly with the leasing company. Because there are often early termination or other fees involved in paying off a lease, you may not get the full amount of your trade-in with a leased car. So, as with trading in a car with negative equity, it could make sense to wait until your lease is over and exercise the purchase option.

    At that point, of course, you dont have to buy the car at all but can simply turn it in and walk away. And unless you plan to drive that car for some length of time before you trade it inor a car dealer is willing to pay you more for it than the purchase option costs youthat could be a smarter move from a financial standpoint.

    Read Also: Make Car Freshies

    Option : Roll Over Balance Onto New Loan

    The first option would be to roll over the remaining balance onto your new loan. This could raise your monthly payments, so you’ll want to make sure this choice works with your budget.

    Additionally, you’ll want the length of the new loan to be as short as possible . Otherwise, you may continue to have negative equity for an even longer period of time.

    Trading In A Car With An Existing Loan

    How does trading in a vehicle with a loan work ALQURUMRESORT.COM

    A dealer trade-in is a relatively easy transaction compared to a private-party sale. If your trade-in vehicle is worth more than the loan payoff amount, the difference will be credited toward the price of the new vehicle. If your payoff amount is more than the trade-in vehicles value, the dealer will add the difference into your new vehicle loan.

    Recommended Reading: Who Takes Carcareone Credit Card

    Trading In With Negative Equity

    If you owe more on your old car than it is worth, your set of wheels has negative equity. In dealership parlance, it is upside down or underwater. In this case, the dealer will add the difference between the loan balance and the value of your trade-in to the price of your new car.

    Suppose, for example, that the remaining balance is $8,000 on your 2019 Ford Focus. The dealer will take the car as a trade-in for X amount of dollars, minus the payoff on the car. So, if the car dealer gives your car a valuation of $7,000, and the car has a loan payoff of $8,000 for your existing loan, then you will still owe $1,000 on the car, which inflates the cost of your new car by $1,000.

    Keep in mind that if you have negative equity in your trade-in, you probably need to make a down payment to secure your loan.

    Take note that rolling over your negative equity to your new car loan increases your monthly payments because you are now paying interest on the principal and the roll-over amount.

    If you were to take out a 60-month, 9-percent-interest car loan on a car that costs $14,000. You would make monthly payments of $291, and the total interest you pay would be $3,460. If the dealer applies the negative equity from your old loan to the car, you would be servicing a $16,000 loan instead.

    Given the same term, and at the same interest rate, your monthly car payments would be $332, and the total interest you pay would be $3,920.

    Trading In A Vehicle With Negative Equity

    The second scenario would be that you’re trading in a car with negative equity. This is also known as being upside-down on a loan, when you owe more on the vehicle that what it’s worth.

    For example, you may owe $7,000 on a car that has a trade-in value of $6,000. The trade-in credit will cover most of the loan-leaving you with $1,000 that you’ll need to pay off.

    There are several ways you could handle this situation, as illustrated below.

    Recommended Reading: Whats The Fastest Car In The World 2021

    Know What You Owe On Your Existing Car Loan

    You can still trade in a vehicle that you have a car note on, but youll want to be aware of how much you owe and how it compares to the cars trade-in value.

    If you have positive equity in your car meaning you owe less than what its worth thats good news. The dealership can pay off your old auto loan and any remaining amount from the trade-in will be applied toward the cost of your new car.

    For example, if your cars trade-in value is $10,000 and your loan balance is $6,000, youd have a $4,000 discount off the price of your new car.

    If you have negative equity in your car meaning you owe more than its worth you can still trade in your vehicle. Youll just have to pay out of pocket whatever the trade in does not cover to close out the old car loan or you can absorb that amount into your new car loan.

    For example, if your cars trade-in value is $10,000 but you still owe $12,000 on your auto loan, youll have to come up with the additional $2,000 to pay off your loan or fold that $2,000 into your new car loan.

    Of course, the best situation is if you own your current car outright with no auto loan. Then the entirety of your cars trade-in price would be applied to lower the cost of your new car.

    Can You Trade In A Leased Car For Another Lease

    BEST WAY to TRADE in a CAR with Negative Equity

    Yes and no. Depending on where you are at in your lease term, it may not be financially advantageous for you to do so. Working with your dealership, they can act as your liaison with the lease company to calculate what your contract obligations are to see if it makes sense to payout your obligations or roll it into your new lease. The leasing company may not be willing to take on excessive debt and deny the new lease.

    The new lease will include all of the fees and penalties from your original lease and add them onto your new lease, so it usually more expensive. So any costs you incur because of excess damage or annual kilometre penalties get added to the new lease, but that also means the cost is spread out over the lease rather than all up front. If you can take that extra financial hit, there are plenty of times when it can make sense.

    You can read more about this situation in our guide to getting out of a lease early.

    Also Check: Arizona Bill Of Sale Title Transfer

    More articles

    Popular Articles