Best Age Of The Car To Trade In
Again, newer is better. Your car will hold more value the more recent its model year. As with mileage figures, there typically isn’t one particular age when a car’s value plummets. It will decline gradually but steadily. But by the time it’s about 5 years old, its residual value has likely dropped significantly.
When it’s between five to seven years past its model year, the decline in its value slows and mostly settles. So if you didn’t trade in during the first five years of ownership, there’s not much reason to rush to do it before the car turns 8. You’ll get about the same amount of money back as long as the mileage doesn’t skyrocket, so consider taking that extra time to build your savings for a down payment on something you really want.
How To Calculate The Best Time To Trade In Your Car:
Imagine that you had a car that costs $30,000. During the next 3 years, the value is reduced to $15,000. If you take the difference between the original price and the current price, youre left with a depreciation amount of $15,000.
$30,000 $15,000 = $15,000
If you divide the depreciation amount by the number of months you have owned the car, you will find that you paid $416 per month in depreciation to own the vehicle.
$15,000 / 36 = $416
However, if you continue to own the vehicle for another 3 years, you may see the value of the vehicle will drop from $15,000 to $13,000. That means that for the next 3 years, you will only have paid $55 in depreciation every month.
$15,000 $13,000 = $2,000
$2,000 / 36 = $55
Ultimately, if you keep the car for 3 years, you lose $416 per month in value depreciation. But if you keep the car for 6 years, you only lose $236 per month.
$15,000 + $2,000 = $17,000
$17,000 / 72 = $236
This math shows that it makes more financial sense to keep the car longer. Keep in mind that losing money due to depreciation is not a complete loss. While it is money out of your pocket, you will also have use of a well-running car, a value that is harder to quantify but should still be a factor.
Cars typically lose value faster in the first 2 years of ownership. Once youve weathered that stretch, the value will drop much more slowly.
Things To Do When You Can No Longer Afford Your Car Payment
You should be aware that your lender will report any delinquent or missed payments to the credit bureaus. As The Balance points out, your payment history is the most significant factor in your credit score. When your lender reports negative activity, this is sure to bring your score down. It isn’t easy to get back on track once you start missing car payments. It’s especially tricky if you have other financial obligations. Each missed payment is another negative mark on your credit report. If you miss too many payments, you’ll end up defaulting on the loan, and your lender will have no choice but to repossess your car. Defaulting on a loan can severely damage your credit score and give other lenders a reason to deny your loan applications in the future.
The Balance suggests that you contact your lender and make sure they understand that you are doing everything you can to get back on track with your payments. You can refinance your loan, which means you would take out a second loan to pay off the original loan. Your current lender may be willing to refinance the initial loan, especially if you’ve been a reliable customer in the past. However, it’s likely that your lender won’t agree to lower your monthly payment unless you extend the terms of your loan. This means that for a 36-month loan, you would refinance the loan over 48 months. While your interest rate is likely to go up, your monthly payments will decrease.
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Consider What You Owe On Your Lease Or Loan
You can trade in your car even if you have a loan on your car or are still in a lease, but it will make a difference to your bottom line. Any money you still owe on a loan or lease must be paid off before a dealership can take possession of the car. If youre upside down on your loan or lease meaning you still owe more than the car is worth youll end up having to pay money to get rid of your car; the difference between what you owe and what its worth when you sell it remains your responsibility.
That said, many dealerships, especially those selling new cars, will be more than happy to help get you out of a lease or loan to put you in a new or used vehicle from their inventory. A dealership will often take the amount you still owe on your current car and add it to the loan or lease for the next vehicle you buy. Though itll make your new car even more expensive, it can take some of the sting out of being upside down on your loan. Just be sure to pay attention to the terms and conditions if you take on a deal like that.
Learn more about selling a car with a loan or lien
Pros Of Trading In A Car
The most significant advantage to trading your car in is that it can save you from dealing with 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 multiple places, you can take your old car to the dealership and use the trade-in value as equity toward your new car.
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How To Trade In A Financed Vehicle
July 18, 2018 ;;Financing & Leasing
Its very common for drivers to trade in their financed vehicles in Canada. In fact most dealerships, Birchwood Credit Solutions included, have no problem trading in a vehicle that isnt paid off yet. But its important you understand how the trade-in process works before you consider it as an option for you.
Theres a misconception when it comes to trading in vehicles that we often hear Once I trade in my vehicle, the loan will disappear even if I havent finished paying it off. This is false and the remaining balance must always be paid off. But there are other factors to trade-ins too.
In this post, well go over trading-in financed vehicles and whether its the right decision for you. Heres what well discuss:
How Does Trading In A Financed Car Work
When you trade-in a car that still has an outstanding loan to pay off, there are two scenarios that can play out.
First, if the trade-in value for the car is more than the amount remaining on the loan, the process is easy. The trade-in value pays off the rest of the loan, and you put the remainder towards purchasing the new vehicle as was described above.
However, if the trade-in value is not enough to cover the rest of your loan, you have what is called negative equity or an upside down car loan. This situation is more complicated and deserves its own question and answer.
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Close The Deal Make The Trade
If you own your vehicle , then trading in your car with Go Auto is pretty easy. We simply take the trade-in value from your new car price. Whatevers left, thats what you pay, either in cash or through financing.
If you happen to be downsizing your vehicle and your trade-in value is actually more than the value of the new car youre buying, then the dealership will just cut you a cheque for the extra amount. Lets use an example here: You dont want to drive your truck anymore and you trade in your 2016 Ram, valued at $41,000. You want to buy a 2018 Honda CR-V, valued at $36,000. Youll actually make $5000 on the deal .
If you still owe money on your vehicle, the process is a bit more complicated. But dont worry, its not a big deal. We literally do hundreds of these every single day.
If your trade-in value is more than what you owe, then well cut you a cheque for the extra cash or put it towards a new vehicle. But if youre upside down on your loan , then the difference will be added to the cost of your new vehicle. Again, lets use an example: If your 2016 Ram truck is valued at $41,000 but you still owe $45,000 on it, then the extra $4000 you still owe after your trade-in will be added to the cost of the new Honda CR-V you want to buy. So instead of paying $36,000 for it, youll pay $40,000.
Get Your Vehicle Appraised By The Dealership
We cant speak for what other dealerships do, but at Go Auto, we only deal with stores that use the following appraisal process. This way, we ensure that our customers are taken care of in a simple, efficient manner.
- Once the appraisal is booked, our trained professionals will do a 140-point inspection to give you the most accurate evaluation possible.
- Once we have appraised your vehicle, our appraisers will present you with an offer to purchase your vehicle on the spot .
- Well extend the offer for several days, and youre under no obligation to accept it. Remember, you dont have to buy something from us, either!
If you want to stick around at the dealership during this process, youre more than welcome to. If youd like to leave and come back, thats an option as well. Whatever youd like, we can accommodate you.
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How To Sell A Car That Is Not Paid Off Jd Power
Oct 23, 2020 If your loan is with a local credit union, local bank, or a large bank with a branch near you, you can often do the deal in that place of;
Pay the difference in cash · Trade in the car, and roll the negative equity into your new car loan · Stop driving your car and keep making payments until you have;
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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What Vehicles Do Best/worst As A Trade
It’s difficult to predict what will happen in the used car market as the world recovers from the coronavirus pandemic. But certain trends are likely to hold true. Generally, you can count on the following:
- SUVs keep their value better than sedans.
- The Toyota Tundra and Tacoma are the two best vehicles at holding residual value.
- Specialized vehicles, such as Jeep off-roaders or Porsche sports cars, perform better than most.
- Popular in-demand vehicles such as the Honda CR-V and Toyota RAV4 do well.
These are typically among the leaders at holding value because they are considered more rare, more reliable or long-lasting, or easier to resell than the average vehicle. Some, such as Jeeps, Porsches and Tundras, check all three boxes.
SUVs outperform sedans because they are seen as more durable and more practical. That said, compact and midsize sedans hold their value well compared with most electric vehicles and expensive luxury cars.
And of course, a car that’s in good shape will command a larger sum than one with multiple repairs and chipped paint. The best thing you can do for your car’s value is take care of it.
FAQsHow long should you keep a car before trading in? Ideally, you want to keep a car for a few years after it is paid off before you trade it in. This way, you get to enjoy the benefits of ownership. If you can’t or aren’t willing to wait that long, at least make sure you have positive equity in the loan.
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When Not To Trade In Your Car
Now that you know when to trade in your used car, are there times when you shouldnt? It turns out there are instances when you should wait:
i) When your car is new
Your new car will have lost about 10% of its value one minute after driving off the lot. In the first year of ownership, the vehicle will depreciate by up to 20%. After the first year, the car will be losing around 10% of its value annually until the 5-year mark. Technically, this means that it will be significantly cheaper to own your new vehicle after the first year.
ii) When youre upside down on your car loan
If youre underwater on your car loan, its advisable to wait until you clear the loan or you have equity on the car before trading it in. Rolling over the balance onto your new auto loan means that you owe more than the car is worth even before youve driven out of the dealership. Youll still be able to sell the vehicle in the future, but youll have lost more money in the form of interest along the way.;
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Why You Can Trust Bankrate
Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. Weve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next.
Bankrate follows a strict editorial policy, so you can trust that were putting your interests first. All of our content is authored by highly qualified professionals and edited by subject matter experts, who ensure everything we publish is objective, accurate and trustworthy.
Our loans reporters and editors focus on the points consumers care about most the different types of lending options, the best rates, the best lenders, how to pay off debt and more so you can feel confident when investing your money.
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.
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Alternatives To Auto Trade
You do not necessarily have to trade in your financed car. You may still choose to sell it to a private buyer, but you should first notify your lender. Although a private sale can take longer, you may end up getting a larger amount for your vehicle than a dealer trade-in, which could significantly reduce the negative equity, if any.
Try swapping in your new vehicle for a less pricey one if you can not purchase the car you want as you will need to carry over the negative equity. Although you will have to roll back the negative equity from the previous auto loan, your overall loan balance will be reduced, and you will end up paying less in total interest.
Normally It Takes Longer Selling It Yourself
With only a few exceptions, selling a vehicle can take many weeks, if not longer; particularly if your car is in less-than-ideal condition. The seller would be responsible for every single aspect of the sale procedure, from creating an ad, to coordinating test drives, to negotiating price, and anything else that comes up. Conversely, trading in a car usually takes place when you purchase your new car.
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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.
