Obtaining The Payoff Information
When your trade-in vehicle has a loan that requires payoff, the dealership will contact your lender to obtain the amount required to bring it to a zero balance. They may also require additional information that will help to ensure that the money is applied to the correct account, such as your account number and the lenders mailing address.
If you have a billing statement or a coupon book, its a good idea to take that to the dealership with you so you have some of the information they may need.
Advantages Of Trading In A Car
While it might seem like selling your car on the used market might be the best way to get it off your hands, there are numerous advantages to trading it in to the dealership where you are buying your new car. Having everything done at the same place can ease a lot of the stress involved in getting rid of a used car and can roll all the transactions into one. The advantages of a trade-in far outweigh some of the disadvantages, especially if your car has issues.
Simplicity
The biggest advantage of trading in your car is the fact that the process is much simpler. When you sell a car to a third-party car buyer, there is a lot of extra work you have to do to make sure you get the best possible deal. Listing the vehicle in different places and meeting with potential buyers can eat up a lot of time and money, not to mention stress, which decreases the overall value of the vehicle. When you trade in your vehicle, everything is done in a one-stop-shop with the same people, and you can be reasonably certain that everyone involved is honest and professional.
Pay Off Your Loan
Potential Tax Savings
Many people trade in their cars instead of selling them on the used market because it can save a lot of money when it comes to sales tax. When you trade in a vehicle, the car’s trade-in value is subtracted from the total cost of your new vehicle. Because of this, you will end up paying less on the sales tax for your new vehicle than you otherwise would.
Paperwork Done By the Dealership
Is It Illegal To Trade In A Car With Problems
While it is not unethical to trade in a car with issues, you will not get top-dollar for your trade-in.
When you meet with the dealer to trade-in your used car, they will thoroughly inspect it for damage and deduct the costs if any necessary repairs need to be made from the value of your vehicle. If you know if there is anything that is significantly wrong with your pre-owned car, it is best to be upfront about it. This is only because dealers will sometimes make less-than-generous offers if they discover the issues on their own.
Its a smart idea to get your vehicle with problems appraised before you take it into the dealership as a trade-in. Sites such as Kelley Blue Book, Edmunds, and the National Automobile Dealers Association all have online appraisal kits that make appraising your car super easy. These tools allow you to include your old cars condition for the most accurate figure. However, many dealerships have their own estimates of the cost of repairs, and these can differ from yours. Dealerships are also required by law to fix critical problems with old cars before they resell them, so be aware that your dealer will deduct the cost of these repairs from your old cars trade-in value.
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Is Trading In Your Car Worth It
An easy way to see if trading in your car to a dealer is worth it is to look at the difference between your cars retail value and its trade-in value. For example, if your car has a retail value of $12,000 and a trade-in value of $10,500, youre essentially paying the dealer $1,500 to clean, repair and sell your car for you with all the accompanying paperwork and the necessary trip to your states Department of Motor Vehicles . If you dont think the difference is worth it, try to sell it as a private seller. If you do think the difference is worth it and/or youre unable to sell it on your own, then trading in your car is worth considering.
What Additional Documents Are Needed
Documentation required to trade in your vehicle will vary depending on the state in which the vehicle is titled and registered, along with the dealership requirements. You should understand your responsibilities when trading in your vehicle, so if there is a form that you find confusing, make sure you ask questions before signing.
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Is Your Trade Classified As Retail Or Wholesale
If the used car manager decides your vehicle will qualify for retail. He must determine what it will cost the dealer to get your vehicle ready and available for sale on the lot. That means he must determine a value for your car and then subtract money for any discrepancies, cracked windshield, torn leather, detail, tires, alignment, etc.
If he decides your trade will be wholesaled or sent to auction, hell set a value thats just below the current wholesale market value of your car. The reasoning behind the lower value is that way he will make a little money at the auction or when he sells it to a wholesaler.
Most car dealers try to break even or make very little money when it comes to wholesale. If a dealer is making money in the wholesale business they believe they are missing out on retail car sales.
Can You Trade In A Car Thats Not Paid Off
You certainly can. However, how much you get for the car is a different story and its not uncommon for many car buyers to get less money than they should for their trade-in. For those not in the know, if the car that you have is worth less than what you still owe on it, then thats called negative equity. But if its worth more than what you still owe, then thats referred to as positive equity.
For example, lets say that you have a Honda Accord that you still owe $15,000 on and youve checked Kelley Blue Book, which told you that the car is worth $12,000 as far as its trade-in value. But when you get the car appraised at the dealership that youre working with, they might offer you $10,000 for it. If thats the case, then you have a few options.
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How To Calculate The Cost Of Trading A Car With A Loan Balance
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.
If the value of the car is more than what you owe, the dealership will accept the trade-in and take on the debt owed for the car knowing that they can still sell it for a profit, said Jake McKenzie, an analyst with Auto Accessories Garage.
But if you owe more than the car is worth, a dealership may still allow a trade-in, but what you owe on the vehicle will be tacked on to the price of your new car and effectively transferred to the new loan, McKenzie said.
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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Determine Whether You Still Owe Money On Your Current Car
You may be upside down, or have negative equity, on your car loan. When you have negative equity, you owe more on your car than its worth. In these cases, you may still be able to trade in your car. But the outstanding balance on your old auto loan could be rolled into your new car loan, which can increase your monthly payment and potentially make you even more upside down.
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Will A Dealership Take Any Car As A Trade
A car dealership will accept any make and model of used car in any condition. Even if the car isnt currently running, you can still have it towed in as a trade. Dealerships dont care about rust, stains, dings, or dents. However, some dealerships will not accept the car if it has significant collision damage, such as a missing bumper or destroyed fender.
While you obviously will not get top dollar for your used car, you can rid yourself of the headaches that come with your old vehicle.
How Does Trading In A Car With A Lien Work
You can trade in a car that has a lien on it, but to do so you have to get the lien removed before you can legally pass ownership to the dealer. Usually, people will have a lien on the car as security for a debt they owe to someone else, like a bank, where you offer your car as collateral. To get the lien removed, you will have to pay off your debt to satisfy the lien-holder.
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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.
During The Payoff Process
Once the transaction for your new vehicle is complete, the dealership will issue payment to your lender in order to pay off your trade-in vehicle. The check will be issued for the agreed-upon amount on your contract.
Its your responsibility to make sure your account reaches a zero balance. This means:
If you have a payment due during the time the dealership is processing the payoff of your vehicle, you are responsible for making that payment. If your lender receives payment that is for more than the amount owed on your account, they will issue a refund. In the meantime, its important that you make your regular payment on, or before, the due date.
If there is a delay in your lender receiving the dealerships payoff check for ANY reason , you are responsible for a payment that may be due in the meantime and/or additional interest that accrues during the delay.
While its not required, it is a good idea to follow-up with your lender a few days after youve traded in your vehicle, to see if theyve received the payoff. If they havent, you can let them know that you did trade in your vehicle and the name of the dealership who will be sending the payoff. In addition, you should contact the dealer for an update on whether they have sent the payoff amount. If they have not, you should inquire as to when they expect to do so.
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Consider Selling Your Car To A Private Party
The amount of money you’ll get by trading in your car is generally less than you could get by selling it to a private party. When the dealer takes your car as a trade-in, they’re planning to sell it to someone else. They can’t offer you its full value, because they need to make a profit. They may also have to spend some money sprucing up the car to make it more presentable.
Selling your car by yourself is more work , but it may be worth it if you have the time. A relatively easy way to reach potential buyers is by advertising on one of the major used car websites.
Find Out What Your Trade
Dealers use a variety of different references to determine what your used vehicle is worth. They can use the Black Book or Blue Book to find wholesale values. To get a good idea of what they might offer you, its best to use an industry guide like Kelley Blue Book to find out what your trade-in is worth. Youll need to know the vehicle make, model, mileage and condition. KBB says that about 54% of trade-in vehicles qualify as good condition. Here are the four most popular industry guides for vehicle appraisal. The first three are free for the public to use online. Black Book is an industry guide that dealers can access for a fee.
When youre trading in a car, the dealership that trade to will not be offering any more than the rough- to average-wholesale price for the vehicle, says Steve Lang, a longtime auto auctioneer and car dealer out of Atlanta who co-developed the Long-Term Quality Index. Expect the dealer to offer a low value, and aim to get at least trade-in value for your car. The only common reasons you wouldnt be able to get trade-in value are if your car was in a major accident or if it has a salvage title.
Whats my truck worth?
You could use the same industry guides listed above to find out what your pickup truck is worth. But if youre wondering how much your truck is worth and you have a commercial vehicle, you could:
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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
Understanding Your Cars Price And Value
Youre likely to see four types of prices when youre dealing with trading in a car: wholesale, trade-in, private and retail. Heres how each price works:
- Wholesale price or value: The wholesale price is the vehicles auction price. Some dealers purchase used vehicles at auctions and resell them. The price they pay is the wholesale value, and it is generally the lowest of the four prices you might see when looking at trade-in value.
- Trade-in value or price: If you trade in your vehicle, you could generally expect a value close to the wholesale value of the vehicle. Your vehicle may be worth more if there is a high demand for your particular vehicle or its in great condition.
- Private sale price or value: This is the amount you could expect if you decide to sell your vehicle to another consumer in a private sale, say through Craigslist or other platforms. This number is usually higher than the trade-in value.
- Retail price or value: The retail price is what you would expect to pay for a car at a dealership.
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