Trading In Your Financed Ride: Is It A Smooth Shift or Roadblock?
Thinking about getting behind the wheel of something new and shiny? Maybe your trusty steed is starting to feel a little rusty, or perhaps you’ve got your eye on that sleek SUV. But hold on! If your current car is still financed, trading it in might seem like navigating a tricky roundabout. Fear not, because trading in a financed car is totally doable – with a few things to keep in mind.
Understanding the Basics
First things first, let’s unpack what “financed” actually means. When you finance a car, you essentially take out a loan to cover its cost. You make monthly payments towards this loan until it’s fully paid off. The car itself acts as collateral for the loan.
When trading in a financed vehicle, you’re essentially selling the car to the dealership before you’ve finished paying off the loan. This means there are a few extra steps involved compared to trading in a car you own outright.
Step One: Check Your Loan Agreement
Before heading down to the dealership, dust off that loan agreement and give it a good read-through. Look for clauses related to early repayment penalties. Some lenders may charge fees if you pay off your loan before the agreed-upon term. Knowing this upfront will help you avoid any unpleasant surprises.
Step Two: Determine Your Car’s Value
Just like when selling any used car, knowing its value is crucial. Use online tools like Kelley Blue Book or Edmunds to get an estimate of what your car is worth. Remember, the dealer will likely offer you a wholesale price, which is lower than the retail price they’ll charge for it on their lot.
Step Three: Calculate Your Equity (or Lack Thereof)
Subtract the amount you still owe on your loan from the estimated trade-in value of your car. This difference is your equity.
* Positive Equity: Congratulations! You have some money leftover after paying off the loan. This can be used towards the down payment on your new car, reducing your monthly payments or even getting you a better interest rate.
* Negative Equity: This means you owe more on the loan than your car is worth. Don’t panic! Dealerships often roll negative equity into the loan for your new car. This increases the amount you’ll need to finance, so be prepared for potentially higher monthly payments.
Step Four: Shop Around and Negotiate
Just like when buying a new car, shop around at different dealerships and compare offers. Negotiate not only the price of the new vehicle but also how they handle your trade-in. Ask them to explain their valuation process and be prepared to counteroffer if you feel it’s unfair.
Step Five: Finalize the Deal
Once you’ve chosen a dealership and negotiated a satisfactory deal, they’ll take care of the paperwork for transferring the loan on your old car. They’ll pay off the remaining balance with the lender and transfer the title to them. You can then enjoy cruising in your new ride!
Important Considerations:
* Gap Insurance: If you have gap insurance (which covers the difference between what you owe on your loan and the actual value of your car in case of an accident), make sure to cancel it when you trade in your vehicle.
* Loan Transfer: Be aware that transferring a loan can sometimes affect your credit score, especially if the new loan terms are significantly different from your previous one.
Trading in a financed car is a common practice, and with some research and negotiation, it can be a smooth transition to your next automotive adventure. Remember, knowledge is power, so arm yourself with information and don’t hesitate to ask questions along the way!
Leave a Reply