When you trade in a car, and you still owe money, you will need to pay off the rest of the loan with the money you get from the dealership. If the amount you owe on your automobile loan is less than the value of the car you want to trade in, you have positive equity.
When you trade in a financed car, you are giving up a car on which you are still making payments. Dealers will be happy to work with you and do most of the work, but you should know about the process before you start.
- When Can You Trade in a Financed Car?
- Can You Trade a Car When You Have a Negative Equity?
- What Are the Things You Should Know Before Trading in Your Financed Car?
- Why Should You Clean the Car Before Trading it?
- Why Should You Negotiate the Trade-In Separately?
When Can You Trade in a Financed Car?
You are free to legally trade in your financed vehicle at any point during the term of the loan. It’s not a question of whether you should trade in your automobile after a year or two, as it is about how much money you can lose or gain at any time in the loan period.
Your vehicle’s equity can be calculated by subtracting the amount still owed on your loan from the trade-in value of your vehicle. You have equity in your car—the only thing left is to determine if that equity is positive or negative.
The first thing you need to do is determine how much money your car is currently worth. After that, deduct the current sum of the loan and any prepayment penalties associated with the loan.
If you pay off your loan ahead of schedule, the lender may charge you an early repayment cost known as a prepayment penalty. It’s something that would have been included in the paperwork for your car loan, and you would have had to consent to it.
When Is the Best Time to Trade in a Financed Car?
When you have positive equity in a financed car, that’s the best time to trade it. When you have positive equity, you owe less on the car than it is worth. This equity can lower your payments on your new car and even help you get a lower loan payment on the new car.
It might not seem like the best idea to trade in a financed car, but it’s worth looking into. When you trade in a car, you still owe money, and you can pay off your loan faster and save money. But remember that you will still have to pay off the rest of your loan. Before you trade in your car, it’s a good idea to talk to a finance expert.
Can You Trade a Car When You Have a Negative Equity?
You have negative equity if you owe more on your car loan than it would be worth if you sold it. Don’t worry. This happens to many borrowers, especially at the beginning of a loan term, and it’s not the worst thing that could happen. There are still some good choices for you.
If you need to replace your car immediately, you should use your savings to pay off the loan agreement with your lender. Before you go to a dealership, you should call your lender to find out how their process works.
Another option is to wait until your car is worth more than you owe on it. If you bought a new car on credit, you’re likely to be upside down on your loan as soon as you drive away from the lot. Used cars lose value much more slowly than new cars.
How Can You Trade a Car When You Have Negative Equity?
The value of a new car drops by 10% in the first minute after you drive it off the lot. It makes more financial sense to trade in your car after a year when you’ve had more time to enjoy it.
As a general rule, you should trade in your car at least two years after you bought it if you want a better chance of making money.
You could also give up your car and get a smaller car. Sometimes you don’t have time to wait for your car to gain more value. You could trade in your car to get a lower payment or a smaller, cheaper car. If you feel like you need to make a decision quickly, at the very least, avoid these situations.
What Are the Things You Should Know Before Trading in Your Financed Car?
The following information is important for you to be aware of while contemplating your choices. First, you should know the value of your car as a trade-in. Websites like NADAGuides and Kelley Blue Book can help you figure this out so that they will give you a range of prices to negotiate better at the dealership.
You should also know how much you still owe for financing the car. Log in to your online account with your lender to find out how much you still owe and compare it to what your car is worth as a trade-in. Note that you’ll need to look at the payoff amount, which includes the interest that’s been added since your last payment.
The third one is to know your budget. Once you know if you have positive equity or negative equity, you can decide how much you want to spend on a new car.
If you can help, don’t roll negative equity into a new loan. This can put you in more debt. Also, consider the new car loan’s interest rate and monthly payment to see if they fit into your budget.
Why Should You Also Know Your Loan Options First?
The last one that you should know is your loan options. You can finance a car purchase in a few different ways. First, you can leave it up to the dealer. They will send your application for credit to several lenders and give you choices.
However, keep in mind that dealers may take a cut for setting up the financing, which can increase your interest rate. You can also get funding direct by getting in touch with lenders. You have to put in more effort, but it can save you money.
Remember that selling your car privately can usually get a better price, but the process can take a long time. Keep reading if you’d like to do a trade-in for convenience.
Why Should You Clean the Car before Trading it?
Take some time to clean your car and fix small things that are broken. You don’t have to pay to get it detailed, but it can be helpful if you don’t have the time or materials. Fixing minor problems can also help.
Since the dealer won’t have to do it themselves, they will probably knock off more money than you’d pay for the repairs.
At the very least, you should have the car cleaned up so the dealer can sell it quickly. If the car has a small crack in the windshield, a scratch on the paint, or a small dent, look for ways to fix these problems cheaply.
Depending on how much it costs to fix, you might not get enough money back to make it worth. Still, finding out more about your choices can help you make a better choice.
Why Should You Know How to Negotiate When Trading?
As was already said, there is no set price for each make and model. Instead, you’ll be given a range of values based on the car’s age, how many miles it has been driven, and its condition.
If you already know that range, you can use it to negotiate a reasonable price with the dealer. If they don’t negotiate, look for a different dealer. Shopping around for your car could help you get the most money for it when you trade it in.
Why Should You Negotiate the Trade-In Separately?
When you buy a car, dealers usually try to get the best deal using financial tricks. One common tactic is to try to get you to focus on the monthly payment instead of the sales price.
Dealers often use a longer payment period to lower the monthly payment and make the deal look better. By focusing on that one number, they can get you to forget how much the trade-in is worth. But in the end, if you take longer to pay back the loan, you’ll pay more interest.
Because of this, it’s a good idea to negotiate the price of the trade-in car separately from the sale of the new car. With the research information you’ve collected, you’ll be better positioned to negotiate a better deal.
Once you agree on a price, get it in writing and take it to the dealer’s finance department or another dealer if you want to look around.
Why Is it Important to Get Written Confirmation of the Payoff?
The dealer typically pays off your old loan when you buy a car with a financed trade-in. It’s a good idea to notify your lender, though, especially if you have a payment soon.
More importantly, ensure you get written confirmation from the dealer and the lender that your old loan has been paid in full. The last thing you want is a surprise bill because the dealer took too long to pay off the loan.
Conclusion
One of the best ways to lower the overall price and monthly payments on a new or used car is to trade in your old one. You can trade-in at a dealership if you have a financed vehicle.
In most respects, the procedure is the same as when trading in any other car. The value of your car can be determined either through online resources or by visiting a local car dealership.
