Trading Up: Can You Trade In A Car That’s Still Financed?
So you’re thinking about getting a new ride, but your current car is still under financing? Don’t worry, you’re not stuck!
Trading in a financed car is definitely possible and can even be a smart move. It just requires understanding the process and navigating some financial details. Let’s break it down:
Understanding the Basics
When you finance a car, you essentially take out a loan to cover its cost. The lender owns a portion of your car until the loan is fully repaid. This means they have a lien on the vehicle, which needs to be addressed when trading it in.
Steps for Trading In a Financed Car:
1. Know Your Loan Payoff Amount:
Before heading to the dealership, contact your lender and get your current loan payoff amount. This figure represents how much you still owe on the car loan.
2. Determine Your Car’s Trade-In Value:
Research your car’s current market value using online tools like Kelley Blue Book or Edmunds. Remember, the actual trade-in value offered by the dealership might be slightly lower than these estimates.
3. Calculate Equity (or Negative Equity):
Subtract your loan payoff amount from your car’s estimated trade-in value.
* Positive equity: This means your car is worth more than what you owe, putting you in a good position for trading.
* Negative equity: Your car is worth less than what you owe. Don’t worry – it happens! We’ll address this situation below.
4. Talk to Dealerships:
Visit different dealerships and get trade-in offers. Be transparent about your financed car and the loan details. The dealership will factor in both your car’s value and your remaining loan balance when making an offer.
5. Negotiate: Just like with any car purchase, negotiate the price of the new vehicle and the terms of your new financing.
Navigating Negative Equity
If you have negative equity (owing more on the loan than your car is worth), don’t despair! There are options:
* Pay off the difference: You can pay the difference between your car’s value and the loan balance upfront. This allows for a clean trade-in.
* Roll over the negative equity: The dealership may allow you to roll the negative equity into the new car loan. This means your new loan will be larger, but it lets you drive away in a new vehicle without having to pay a lump sum upfront. Be aware that this increases your overall debt and monthly payments.
* Sell the car privately: Selling your car independently can sometimes fetch a higher price than a dealership trade-in. You’ll then use the proceeds to pay off the loan and any remaining balance becomes your responsibility.
Important Considerations:
* Timing: Trading in near the end of your loan term often results in more equity, as you’ve paid down a significant portion.
* Credit Score: A good credit score can help secure better financing terms for your new car.
* Down Payment: Making a substantial down payment on your new car can minimize the impact of any negative equity and lower your monthly payments.
The Bottom Line
Trading in a financed car is achievable, even with negative equity. By understanding the process, knowing your financial situation, and negotiating strategically, you can smoothly transition to a new vehicle that fits your needs and budget. Remember to do your research, compare offers from different dealerships, and choose a financing plan that aligns with your financial goals. Happy driving!
Leave a Reply