Trading In Your Financed Car: What You Need to Know
So, you’re thinking about getting a new set of wheels? Maybe your current car isn’t cutting it anymore, or perhaps you’ve got your eye on something shinier and newer. But here’s the thing – you’re still making payments on that trusty old ride. Can you trade it in while you’re still financing it?
The short answer is yes! Trading in a financed car is definitely possible, but there are some important factors to understand before you head down to the dealership. Let’s break it down:
Understanding Your Loan:
* Equity: First things first, figure out if you have equity in your current car. Equity means the value of your car is higher than what you still owe on the loan. To calculate this, find out your car’s estimated trade-in value (you can do this online through sites like Kelley Blue Book or Edmunds) and subtract your outstanding loan balance. If the trade-in value is higher, congrats – you have equity!
* Negative Equity: On the other hand, if the value of your car is lower than what you owe on the loan, you’re in negative equity territory. This can make trading in a bit trickier, but it’s not impossible.
How Trading In Works with Financing:
1. Negotiate the Trade-In Value: When you trade in a financed car, the dealership will assess its value just like they would any other used car. Remember to negotiate for the best possible price, using those online valuation tools as leverage.
2. Paying Off Your Existing Loan: The trade-in value is then applied towards your existing loan balance.
* Positive Equity: If you have equity, the extra amount will be deducted from the price of your new car, effectively lowering your down payment or monthly payments.
* Negative Equity: If you’re in negative equity, the dealership may roll the remaining balance onto your new loan. This means you’ll be financing both your new car and a portion of your old loan, potentially increasing your monthly payments.
3. Financing Your New Car: Once the trade-in value is factored in, you’ll work with the dealership to secure financing for your new vehicle. Be prepared to discuss your down payment options and desired monthly payment amount.
Tips for a Smooth Trade-In Experience:
* Shop Around: Compare trade-in values at different dealerships before settling on one.
* Review Your Loan Documents: Understand your current loan terms, interest rate, and any potential prepayment penalties.
* Consider Refinancing: If you have negative equity but are close to being “underwater,” refinancing your existing loan with a lower interest rate or extended term could help reduce your monthly payments and potentially put you in a better position for trading in.
* Improve Your Credit Score: A higher credit score can qualify you for better financing terms on your new car, making the trade-in process smoother.
Trading in a financed car is a common practice. By understanding the basics of equity, loan payoff, and negotiation, you can make informed decisions and drive away in your dream car with confidence!
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