Saturday, December 2, 2023

How To Trade In Car That Is Not Paid Off

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Pros Of Trading In A Car

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

The most significant advantage to trading your car in is that it can save you from the stress and hassle of selling it on your own. Selling a car requires identifying the right price, posting the car for sale where people will see it and dealing with prospective buyers. But when you trade it in, the dealer does a lot of the heavy lifting for you.

In most states, theres also a tax advantage to buying and trading in at a dealership, Nana-Sinkam says, because in those states, they only charge tax on the difference between the trade-in value and the new vehicle price instead of paying full tax on the full purchase price of a new vehicle.

Finally, trading your car in can simplify the steps between selling your old car and buying a new one. Rather than going to multiple places, you can take your old car to the dealership and use the trade-in value as equity toward your new car.

What Should You Bring To The Dealership

If youre planning on trading in a car to the dealership, come prepared with the following paperwork:

  • Vehicle registration

  • Any past work statements from the garage if work was done to the car

  • All keys and key fobs

  • Your own loan paperwork

While this is not always necessary, Papageorge also recommends bringing along a payoff letter from your existing lender. Customers trading in vehicles at a dealership when theyre still making payments on the vehicle should be able to provide the dealer with basic information about their loan, including the current lender, the approximate amount they owe and account number.

After agreeing on a trade-in price, Papageorge said the dealer will generally handle paying off the existing loan and the paperwork like getting the title released.

Get Matched To A Special Finance Dealership

If you want to sell your current car, and get in touch with lenders that can assist with bad credit, then consider a special finance dealership. You can skip the hassle of looking all over for a lender, and the dealer can handle the trade-in paperwork for you. Finding one of these dealerships can be tough, but we want to make it easier.

Trading in your current, paid-off car is a great way to satisfy a down payment requirement. You can also apply for financing with a special finance dealership if your credit score isnt stellar. Here at Auto Credit Express, we want to help you find a dealer that has the resources to assist bad credit borrowers.

Get started right now by filling out our free auto loan request form. Weve created a nationwide network of dealerships, and we want to match you to one in your local area.

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Research The Value Of Your Trade

Knowing your cars estimated fair market value can help you get a sense of what a dealer might offer on your trade-in and give you some negotiating power. Websites such as Kelley Blue Book and Edmunds have tools that can help you estimate your cars trade-in value based on information including the year, make and model of your car, and the number of miles on its odometer.

To get a better sense of whether you have positive or negative equity, you should compare your cars estimated trade-in value to your loan payoff amount. This includes your loan balance plus any interest and fees that have accrued, so it may differ slightly from your loan balance. Contact your lender to find out your payoff amount.

If you have positive equity, you can use what the dealer offers you for your trade-in to pay off your existing loan and use any leftover money as a credit toward the new car purchase. But if you have negative equity, youll need to decide whether to postpone your trade-in, pay down your existing loan or roll your loan balance into the new car loan.

Find Out How Much Your Car Is Worth

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The first step to trading in your vehicle is to understand exactly how much it is worth. Figuring this number out yourself will help you to feel empowered when it comes time to negotiate and can also increase your chances of getting a fair price.

Rather than waiting to find out what the dealer thinks, do some research to get a sense of your current cars value. Free online appraisal tools, such as Kelley Blue Book or Edmunds, can help you determine the worth of your car. If available, use estimator tools that can offer a deeper sense of the dollars your car will command based on car features beyond make, model, year and mileage.

Value may also be impacted by external factors. If gas prices are high, as they are now, a car that gets better gas mileage might be more in demand than an oversize truck.

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What Are Positive Equity And Negative Equity

Before you even consider trading or selling your current vehicle, you first have to determine what kind of equity you might have in that car, truck or SUV.

If you have an auto loan, the very first step is to determine what you owe the lending institution. You might be surprised to learn that a lot of people think that what they owe is simply the monthly payment multiplied by the number of payments left in the entire term of the loan. That figure is almost guaranteed to be way off.

What you want to determine from the bank or finance company is the payoff amount. Thats the number you will pay the bank if you decide to terminate your current loan that day. This number will change monthly, so its important to find out the payoff amount when you first start looking for your next car, and then again the day that you decide to trade it.

Unless you happen to hit it the one day when your payoff amount is exactly the same as your trade-in offers, youll either have positive equity or negative equity in your vehicle.

Positive equity occurs when your vehicle is worth more than you owe the lender. For example, if you owe $10,000 on your vehicle, but your vehicle is worth $22,000, you have $12,000 in positive equity.

CarGurus has a number of articles on determining trade-in value and whether it makes more sense to sell or trade. Check out that information before you make a decision on how to move your current vehicle along.

How Do I Trade In A Car With A Loan

The following steps occur when you trade in your car with a loan:

  • You find a new car that fits your budget. Completing this step first makes sure you have a car when you trade in your existing one.
  • You confirm your car’s trade-in price. Your car’s trade-in value is your equity. It is subtracted from the cost of your new car.
  • You bring paperwork to the dealership. NerdWallet states the dealer needs the following information to trade in your car:
  • Your loan account number
  • Your vehicle keys and remotes
  • Proof of your insurance
  • A print-out of your trade-in value
  • The dealership contacts your lender. The dealer contacts your bank or financial institution and repays your original loan in full, as AutoTrader explained.
  • The dealership handles the paperwork. Your dealer transfers the title of your old car into their name and your new car into yours.
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    How To Tell If Your Negative Equity Is Part Of Your New Car Loan

    Before you sign a financing contract, the dealer must give you certain disclosures about the cost of that credit. Read them. Look for details about the down payment and the amount financed on the installment contract. Make sure you understand how your negative equity is being treated before you sign the contract. Otherwise, you may wind up paying a lot more than you expect.

    Look for a section on your contract with this information:

    Down Payment

    B. Less Prior Credit or Payoff by Seller

    C. Net Trade-In

    D. Deferred Down Payment

    G. Cash Total Down Payment

    How Trading In A Car Works

    How to Trade in a Financed Car

    When you trade in your car to a dealership, its value is subtracted from the price of the new car.

    When you trade in a car with a loan, the dealer takes over the loan and pays it off. The dealer is also supposed to handle the paperwork, such as the transfer of the title, which establishes legal ownership of the vehicle.

    To trade in a car thats not paid off, bring the following items to the dealership:

    • Loan information, including payoff amount and account number.

    • Drivers license.

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    Understanding Positive And Negative Equity

    You have negative equity, also called being upside-down or underwater on your car loan, if the value of your vehicle is less than what you owe on it. You will have to compensate for the gap between the debt balance and the trade-in value by trading in a car with negative equity.

    If you plan to trade in a car with negative equity, you will need to figure out which choice is better for you.

    Consolidate Your Negative Equity Into a New Car Loan

    While this option may be easy, it raises the cost of the current loan, which means you may end up paying more in interest for the loan. This choice typically involves borrowing more money than what your new vehicle is worth, putting you at a higher risk of falling into debt again.

    Pay the difference between the amount of your trade-in and the debt you owe.

    You will be able to afford the difference between what you owe on your new debt and what the broker is paying you on your trade-in if you have the cash on hand. This will help you drive the cost of a new loan down.

    Postpone the Trade-In

    You may want to hold off on trading in your car until you have paid off your loan or are no longer in debt.

    Alternative To A Trade

    Trading in your car at the dealership isnt your only option. You can also sell your car to a private buyer, though you may need to let your lender know first. While it may take longer, youll likely get more money for your car in a private sale than with a dealer trade-in, which could help offset any negative equity.

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    Can You Trade In A Car That Has A Loan

    A common question we encounter is “will a dealership buy my car if I still owe?” It is definitely possible to trade in even if you are still paying your auto loan for that vehicle. However, trading in a car you still owe on might be slightly more challenging and may end up being costly if you are not careful.

    The first step in determining whether a loan trade-in is right for you involves calculating the equity you have built up in the vehicle. The term equity refers to the difference between your cars current value and the remaining amount you owe on your auto loan. This difference can either result in you having positive or negative equity, which can significantly impact the benefits of a trade-in.

    Are You A Good Candidate For A Trade

    What happens if I decide to stop making payments on my car because of ...

    How do you know if youre an attractive candidate for a trade-in? Lang said trading in a financed car might be a good idea for you if any of the following scenarios are applicable.

    • Your vehicle has high ownership costs, ranging from gas prices to maintenance fees.

    • You can no longer afford a large loan. Even if you are in a negative equity situation, sometimes bringing your financed car back to the dealer is the smarter financial decision, Lang said.

    • Your dealer is offering incentives at the end of their financial year to clear out stock. Its possible you might be able to trade in your financed car for a vehicle you may not have thought you could afford before with a lower loan rate and reduced prices.

    • You have positive equity. Depending on the value of your vehicle, Lang said your trade-in could be enough to fully cover the cost of a new vehicle.

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    Trading In A Car With A Loan: Everything You Need To Know

    You can trade in almost any car for a new set of wheels, including a car with a loan. A car with a loan is an automobile that you’re still paying off in installments.

    You can trade in almost any car for a new set of wheels, including a car with a loan. A car with a loan is an automobile that you’re still paying off in installments.

    What Should I Do After Negotiations

    Many people work up to negotiating the fairest price for their new vehicle and trade-in. While these steps are important, your responsibilities don’t stop there. Complete each of these steps in order for a successful trade-in:

  • Review your contract. Make sure your contract contains all the terms you agreed on. Check all the calculations for accuracy before signing.
  • Confirm the original loan is paid off. After a few weeks, call your original lender and confirm your dealer settled your first loan. Ask for documentation confirming this for your own records.
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    Is It Ever A Good Idea To Trade In When You Have Negative Equity

    If you have the money, it is a good idea to pay off the difference between what you owe your lender and the value of your old car before you finance a new vehicle. This way, you dont have to pay interest on the negative equity that would be rolled over into the new loan. If you dont have the cash, the next best option would be to wait on getting that new set of wheels until you pay off your auto loan, or at least until you have enough to cover the negative equity.

    Granted, there are a few circumstances when trading in a financed vehicle may be a good idea. If your old car is a gas guzzler or costs more in repairs and maintenance than you anticipated, you could save money by trading it in for a cheaper model or for a vehicle that costs less to run. It may also be a good idea to trade in if the dealership offers extra incentives on the car you are eyeing. Toward the end of the year, dealerships often offer substantial discounts and better deals on car loans to meet sales quotas and make room for newer models.

    What You Need To Know About Trading In A Financed Car

    Why the Car Dealer Did Not Pay off Your Trade On Time

    When you trade in a vehicle you still owe money on, the dealer takes over the loan and pays it off on your behalf. They also typically handle the process of transferring the title.

    If the trade-in value of the vehicle is higher than the amount you still owe on the loan, this means you have positive equity, and that value will help reduce the cost of the car you’re buying.

    For example, let’s say you’re buying a car for $10,000. If your trade-in is worth $5,000 and you still owe $2,000 on it, the dealer pays off the loan, and your $3,000 in equity reduces the cost of the new car to $7,000.

    However, if you owe more than what the car is worth in a trade-in, this means you have negative equity. The dealer still pays off your original loan, but they’ll require you to pay them the difference in cash, or they’ll offer to roll the difference into your new loan.

    Taking the original example, if your trade-in value is $1,000 and you still owe $2,000, you’d need to come up with $1,000 in cash for the dealer or allow them to add that to your new loan.

    As you consider your options, here are some pieces of information you’ll want to know:

    Also, keep in mind that you can generally get a better price by selling your car in a private-party transaction, but this can be a lengthy process. If you’d like to proceed with a trade-in for the sake of convenience, keep reading.

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    Are There Any Risks Linked With Trading In My Car With A Loan

    There are some risks associated with trading a car with a loan. Considering the risks can help you decide if trading in your car is the right decision right now:

    • Taking out another car loan could stretch your budget.
    • Getting into more debt could put you into negative equity. The Federal Trade Commission explains negative equity in this article.

    How To Avoid Negative Equity

    Cars face severe depreciation in their first few years resulting in negative equity or being upside down, as soon as a new car drives off the lot. There are a couple of things to avoid that will help limit negative equity. During the car buying process, you will often be passed off from a salesperson to a finance person.

    You will have to decide for yourself whether the peace of mind of a warranty is worth starting out underwater before even being handed the keys. Other common packages include service and maintenance packages, tire and wheel protection, or paint protection packages.

    These expensive packages are added to the loan amount, which means if the financed car is worth $14,000, and you put $2,000 down, but add a $3,000 warranty, you now have a loan for more than the purchase price of the car.

    ##Bottom LineWhen trading in a car many car dealerships promise to pay off your current vehicle, but they only mean it if your old vehicle is worth more than you owe on your auto loan. If you are upside down on your car loan and the promise to clear off your debt sounds too good to be true, it probably is. One way or another, the dealership will add the difference between your car loan, and the value of your old vehicle to the price of your next car. Keep in mind that if you can sell your used car yourself, you can keep more of the equity that disappears when you take a wholesale offer from an auto dealership.

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