Some people wonder: “Can you do a trade-in on a financed car?” The answer is yes, you can. However, it is worth considering here that trading in your vehicle for which you have not had time to pay yet requires several additional steps. This also deals with being aware of all the numbers in the contract.
When trading a financed car, the balance of your loan will not disappear, it will still need to be repaid afterward. As a rule, the balance of the loan must be covered by the value of the car offered for sale. It all depends on many factors, including age and condition.
What Does Trading In a Financed Car Feature?
To begin with, trading a financed car implies trading a car that you are still paying for. Dealers will work with you on the issue. They will do most of the work. Nevertheless, you should be aware of all the nuances of the process not to put foot in it.
The thing is that trading a car with credit is entirely possible, but it can be an expensive procedure depending on how much you owe. For instance, if your car is worth more than you owe for it, you can put to use the difference towards the purchase price of a new auto. But if things are different, you will most likely want to pay off your car loan before moving on to the exchange.
When you sell your car to a dealer, its cost is deducted from the price of a new car. When you sell a car on credit, the dealer takes the auto loans and repays it. Besides, the dealership has to get through with paperwork, such as a transfer of ownership, as that is what establishes legit ownership of the financed car. So, can you trade in a car you are still financing? – Yes, you can. For you to legally sell your financed vehicle, you need to bring the following items to your chosen dealership:
- the license of a driver;
- loan info with payoff amount as well as an account number;
- insurance proof;
- registration of the car;
- the car keys and remotes;
- a printout of the value of your item of exchange.
Before heading to the dealership, be sure to check your monthly payment statement for information about how much you owe on your financed car loan. What matters here is that the new car purchase price, as well as the value of the exchange item, are negotiable. To have a good deal, you should get a positive interest rate on the new loan and a fair price for both vehicles. Make sure to make use of a loan calculator to estimate these numbers and understand what your new monthly payment and credit score can be.
Trading in a Car with Positive Equity
In case your auto is worth more than you have to pay, it means you have positive equity. The name speaks for itself since positive capital is good. When you trade in a financed car, the dealer can use any capital you have to buy a car (new). This reduces the amount you owe.
For example, you owe money ($3,000) for your auto and it’s worth $5,000 as a trade item. You now have $2,000 of capital to spend directly on your next vehicle. This money is deducted from the contract price of the new car. In addition to any capital applied to the purchase of a new car, you can make a down payment to reduce your overall loan balance.
In this case, you should provide financing cash or a car loan for the remaining purchase price of the vehicle. In concurrence with this, the value of the trade-in item will be indicated in the contract for the new car. Determine that you are given the full agreed amount that you agreed upon.
Trading in a Car with Negative Equity
In case you owe more than your vehicle is worth on a loan, you are dealing with negative equity. By asking a question: can you trade in a car that is financed, the answer will be yes. With such negative capital, you need to decide which option is right for you.
- Roll up the negative equity into your new car loan. It is vital to note that this method increases the amount of your new loan.
- Pay the difference between the value of the item to be exchanged and your balance. If you have cash on hand, you can pay the difference between what you owe on the loan and what the dealer offers you for an exchange. This will help reduce the amount of the new loan.
- Try to postpone trade-in. You can postpone trading in a car until you pay off your car loan, or stop rolling over.
Stages of Car Loan Exchange
For a trade-in deal to be profitable, follow the algorithm of actions below. First of all, it is necessary to study the cost of the car, handed over to pay for a new one. Knowing the estimated fair market value of your car can help you understand what the dealer can offer in exchange for your car. In addition, you will understand what kind of negotiating opportunities you can get.
To realize if you own positive or negative equity, you have to compare the estimated value of your car when you turn it in against the payment for a new one with the repayment of your loan. This is where you will deal with the loan balance, any accrued interest, and fees. For this reason, it may differ slightly from the loan balance. For exact information about the amount of the payment, be sure to contact your lender.
The next step will be the comparison of exchange offers and subsequent contracts. You should contact several dealers at once to get an estimate of the real, favorable exchange value for you. If the dealer offers a low price, feel free to negotiate to put to use the vehicle’s value estimates that you have researched. Getting several ratings at once assists in making sure you get the optimal deal.
Some dealers may inflate the price of a new car on purpose to offset a large amount of the new vehicle trade-in. Therefore, try to negotiate the purchase and exchange of a new car separately. If you make up your mind to convert your current loan balance into a new negative equity loan, you have to figure out the total loan amount. Don’t forget about the annual interest rate and your new monthly payment before agreeing to the deal.
You have already agreed on the value of your trade-in vehicle and the price of the new one. Now it’s high time to close the deal. Make sure you study the sales contract pretty carefully. It is here that the new loan amount and term, interest rate, monthly payment, and any other verbal promises made during the negotiations are written.
Some dealers can say that they will pay off your car loan and put negative equity into the new one. So, not to miss important moments of the financial product, learn that the contract details how any negative equity is handled.
What Should Be Done Next?
When answering the question: can you trade in a car with finance owing, you need to take into account that the main aspects in trading a financed vehicle are a complete understanding of the appraised value of the auto and how much you owe for it.
If you don’t have the resources to finance the car you would like to have, explore the possibility of trading in the current car for a less expensive one. One way or another, you will need to carry over the negative equity from the current car loan. Ultimately, the total loan amount will be lower. So, you can pay less in total loan interest.
Should You Avoid Trading in a Vehicle for which You Owe Money?
All cases of selling a financed car are individual. By doing this sort of deal, you could buy a cheaper car and cut down on your monthly payment. In addition, you can get better loan terms for a new car. If you have positive capital, you are free to put to use it to lower the cost of a new vehicle.
Nevertheless, in case your equity is negative, you may be trapped by large cash payment on a new loan. More than that, swapping a financed car for one with a higher monthly payment can take a toll on your budget.
The Bottom Line
So, the answer to the question: Can you Trade In a financed car? is positive. Therefore, if you do want to trade in a financed auto, be sure to prepare your finances and credit for buying a new vehicle. Making improvements to your credit can help you qualify for better interest rates and payment terms.