When it comes to trading in a car that’s financed, there are a few common challenges people face.
The first challenge is that you may not get as much money for your car as you owe on the loan. This is because the car’s value has already been factored into the loan amount, so the dealership won’t give you as much money for the car than what you owe.
Another challenge is that you may not be able to trade in your car if you’re behind on your payments. This is because the lender has a security interest in the car and can take it back if you’re not up to date on your payments.
Everyone is in the same boat.
If you’re not up to date on your payments, then it’s tough luck for you when it comes to trading in your car. You’ll need a cosigner with good credit and a hefty down payment if you want to trade in your vehicle while behind on your payments.
When you owe money on your car, trading it in can seem like the best option. You may be wondering, “How does trading in a car work?” and “Can I trade in a car with negative equity?”
Here’s what you need to know about trading in a car when you still owe money on it.
If you have positive equity in your car, trading it in is relatively straightforward. The dealership will give you a certain amount of money for the car based on its value, and you can use the extra money to pay off your next car aquisition.
Related: 10 Tips For First Time Car Buyers
However, if you have negative equity that is, if you still owe more money on your car then it’s worth-things get a bit more complicated. In this case, the dealership may “roll over” your loan.
This means that they will treat the car you’re trading in as if it were a loan and will pay off the money you still owe on your old car to make it more attractive for their financial institution to work with.
It can be tempting to trade in your car when you still owe money on it, especially if you’re looking to upgrade to a newer model.
Can I trade in my car if it’s not paid off?
You can trade in a car whether or not you still owe money on it, but the answer to this question depends on if your loan is paid off. If you know all of the details about your loan, like when it’s due and how much you owe, then you’re ready to sell the vehicle even if it’s not fully paid off.
Reasons why people might want to trade in a car that’s not paid off:
- You may want to get a new car before the old one is paid off in order to avoid being stuck with a high monthly car payment.
- Get a New Car
- Some people may need the extra money from the trade-in for another purpose
- If you’re upside down on your loan, trading in your car can be a way to get out from that debt.
- Trading in your car can help you rebuild your credit score.
Depending on your situation, trading in your car might be the best option for you. Talk to your dealer to see what their policies are and what your options are.
Also Read: Best Tips to Ensure you Buy the Right Used Car
How trading in a car works
If you decide to trade in a car when you still owe money on it here are the required documents that you need to bring to the dealer:
- Driver’s License. (Original)
- Insurance proof
- Car Keys
- Social Security Number.
- Loan information including payoff amount
- Vehicle Registration Papers
Always call before arriving at the dealership. They will tell you what documents they need to process your trade-in.
Trading in a car with positive equity
If you have positive equity in your car, it’s relatively easy to trade it in.
The dealership will tell you how much they’re willing to give you for your old vehicle. You ca determine the correct value of your car by reading this article on Time.com
Don’t rush this process, as the dealer will base the offer on your car’s value and what other vehicles in that dealership are selling for. The dealer may then add fees such as document processing and other administrative fees into that price; however, you can negotiate with them.
Take a moment and review the new car that you’re interested in buying from their inventory. Once you find the one you want, the dealer can work with you to arrange financing.
If your credit score is good, the dealer may have you finance the new vehicle through their company so that you don’t have to wait for approval from an external bank or financial institution.
Trading in a car with negative equity
If you owe money on your old car, then trading it in for a new vehicle can be difficult.
The dealership may need you to pay off the rest of your loan before they’re willing to finance a new vehicle. At this point, you will need to work with the lender on your current car or contact another dealer that is more interested in purchasing it from you.
You can roll your negative equity into the new car loan that you’re getting through the dealership.
However, keep in mind that this will increase your monthly payments because you’ll be borrowing more money. If possible, try to avoid paying more than about 10 percent of your total income on your car payment.
If the dealership does accept your car as a trade-in, then you will have to pay off the rest of your loan regardless of whether or not you are purchasing another vehicle. This means that if the dealership buys your old car and gives you $3000 for it, then that money is automatically going towards the payment on your new vehicle.
If your credit score isn’t good, you can expect to pay a higher interest rate on the new car.
Important things to consider if you’re trading in a car you still owe money on
Make sure that when you are about to trade in a car that’s not paid off, make sure you read all the fine print and understand all of your options before signing anything. This way, if something goes wrong, like if they change the terms on you, then you can back out.
It is also a good idea to have your own financing already in place so that the dealership does not try rolling over your loan as this can be very expensive.
In case they do rollover your loan, make sure you have enough money to cover taxes and fees associated with the new car.
Related: How to Sue A Car Dealer for Misrepresentation
Or if the dealer is already lowballing you with your trade package, tell them that the deal is too low and you will not be able to take it. You can also contact another dealership for a better offer but do so after you have given the first dealership ample time to make a counteroffer.
The idea here is not to give up but rather to negotiate with the first dealership for a better deal. If you do not, there is no point in going from one place to another looking for a better offer since each dealership determines their own price.
Also Read: Test Driving A Used Car: Useful tips
How soon can you trade in a financed car?
Once you’ve got a car loan and made a car payment, you can typically trade-in your car after several months of making on-time payments.
How soon you can trade in depends on the type of finance contract that’s been created with your dealer.
It is better to wait a bit before trading in your car usually a brand new car usually depreciates by 20% or more in the first year so it will be better to wait for at least 6 months.
If you try trading in your car before the depreciation happens, you might get less than what you owe on your loan so it is best to wait for the value of your car to go down before doing any transactions with a dealership.
How do you trade in a car with a loan?
If you have a loan on your car, then as long as you’re up to date with your payments and the car is in good shape, you can typically trade-in your vehicle.
Steps to Follow
1. Research the value of your trade-in vehicle.
Your local dealership and online forums like Edmunds and KBB can give you an estimate on what your car is worth in the current market.
Knowing the fair market value (or trade-in) for your car can help you get an idea of what a dealer might offer on top of it and give some negotiating power. Websites such as Kelley Blue Book have tools that will estimate this based on information including year/ model; number of miles driven – all these factors contribute towards determining how much money someone is willing to pay upfront or over time with interest rates at present levels.
There are also creditworthiness tests that determine whether potential buyers qualify financially before even going through registration processes!
2. Compare trade-in deals and negotiate the price.
Before you go to a dealer, make sure you have an idea of the other offers available online. With thousands of dealerships out there, it can be hard to find a competitive offer that will give you better terms than what’s given by your current lender.
When you go in for a trade-in, negotiate with a salesperson about what they can offer on top of your car and consider all options including new cars and used vehicle loans.
3. How to close the dealand sign papers
Always go in prepared and organize all documents for the sale including your driver’s license, insurance documents, car keys and registration. If you want to modify your current loan terms such as interest rates or loan length, make sure to take copies of them with you.
Don’t forget that you can also sell your car to a private deal.
A contract will be created between you and the dealer when you finalize the transaction. Make sure to read all details carefully and ask questions if anything is unclear.
“Rolling over” a car loan is when you take out another loan to pay off the first one. This can be helpful if you need more time to pay off your car, but it will likely result in more interest payments and could damage your credit score. There are pros and cons to rolling over a car loan, so make sure to weigh all of your options before deciding what’s best for you.
If you financed your car with someone else, such as a parent or relative, you will need their permission before trading in the vehicle. If they want to keep making payments on the car for themselves, then it’s up to them whether or not they’re interested in selling it to you.
Trading in a leased car works the same as trading in a financed car. You need to have your leasing company’s approval before you can sell or trade it, and you’ll probably need their permission to buy another vehicle with them.
The loan on the car you traded in doesn’t go away when you trade-in a car. A new, replacement loan will be taken out so that you can use the money from the trade-in to pay for your new vehicle.
The best calculator for financing a car with trade in is the Edmunds Trade-In Cash Card Calculator. It takes into account your current car, the vehicle you want to purchase, and your credit score to determine what offer you will get on top of your trade-in value.