Can You Trade in a Financed Car?
Yes, you can trade in a financed car, but your loan balance doesn’t just disappear when you do so it still has to be repaid.
In most cases, the loan balance should be covered by the trade-in value of the vehicle, but this will depend on several factors, including condition and age.
How to Trade a Financed Car?
Trading in a financed car can seem complicated and overwhelming, but it doesn’t have to be. Here’s how to navigate the process:
Find out how much you owe: This is an extremely important step when doing business in a financed car.
You can talk to the financial department of the dealership where you bought your financed car, and they can tell you your exact loan rate, the number of months you have left, and the total balance.
Know the value of your car: do your research. Some cars have a higher residual value than others. Toyota and Subaru are two brands that are held in high esteem for their resale value.
Make sure all your paperwork is in order: You will need the registration of your vehicle, all previous work details from the garage (if any were done) as well as the title of the vehicle.
Even if you are bringing your vehicle back to the same dealership where you bought it, you need to make sure you do your own loan paperwork. Don’t trust them. Remember your license, proof of insurance, and all keys and key fobs.
Understand When a Trade-In Isn’t a Good Idea: If you find yourself with a lot of negative equity, putting it toward another debt may not be a good solution for those in a tight financial situation.
Paying off a $3,000 loan will be better than a $30,000 loan for another car, even if you really want to upgrade.
Your best bet may be to keep it with your current vehicle until you are in a better financial position to finance a new one.
Talk to the bank if you know you have to pay on the trade-in: Dealerships are also trying to make money, and if they see you owe too much on your trade-in, they want to roll it over to a new loan for you.
As this can result in a huge loan for the new vehicle, come up with a solution from the bank.
Talk to a financial advisor at a car loan institution for options and bring those options up when you talk to a car dealership about a trade-in.
It is important to know whether it is right for us to trade financed cars. So deciding whether or not a financed car business is right for you is a personal one, but it depends on more than just your debt situation. It is important to consider the following:
Your dealer is offering an incentive to remove the stock at the end of its financial year. You may be able to trade in your financed car for something you might not have thought you could afford before with a lower loan rate and lower prices.
Even if the vehicles are comparable, the trade-in may essentially amount to a refinance. If rates are lower, saving you money over time.
Trading in a financed car may be a good idea for you if: The ownership cost of your vehicle is very high.
It’s easy to get a loan without realizing the long-term costs, and not just with the bank. From gas prices to maintenance fees, some vehicles cost more to operate than others.
You have positive equity. You stand to make some money in this case, or at least save money in the future.
Depending on the value, your trade-in may even be enough to completely cover the cost of a new vehicle.
Now you can’t pay such a huge debt. Even if you are in a negative equity position, sometimes it is a better financial decision to bring your financed car back to the dealer.
Use the valuation tool on Autotrader to see how much your car is worth. You can also solicit cash offers from dealers using the instant cash offer tool.
Select the new good car you want to buy. Calculate payment. If you owe more on your current car than it is worth, expect to add that difference to the loan amount of your new purchase.
How Does Trading in a Financed Car Work?
First, find out the amount outstanding on your car loan, if any. This is usually listed on your monthly loan statement.
Use our Value Your Trade tool to estimate the potential value of your current car. Note that this is only an estimate, and you will only get a definitive offer after you have physically inspected your car.
If the amount owed to you is less than your trade-in offer, you will have money left over which you can use to buy a new vehicle.
For example, if you still owe $8,000 on your car in Folsom, and the dealer offers you $9,000 to buy the car, the loan can be paid off and you have access to your next new vehicle. $1,000 to do.
If what you owe is more than the trade in the offer, you will have negative equity. In other words, you have to pay off your loan! You can either do this in its entirety or incorporate your old debt into your new loan.
The idea of a trade-in is to either trade your vehicle for another which is either paid in full from the trade-in value of your old car, or the money can be put toward a higher priced vehicle.
The vehicle can also be sold directly to the dealer, however, you may still have to pay money on the payment plan.
If you still have any outstanding payments on your car, but you want to sell it, a trade-in may be a more attractive proposition, especially if you still need a car or other type of vehicle. A seller can apply the value of his trade-in to a new or different vehicle.
Essentially, the dealership is buying the trade-in car and applying the payment to the new vehicle and the buyer is responsible for the remaining cost of the vehicle.
Trading in a Car Financed With Equity
If you find that your car payment isn’t affordable and you want to buy a cheaper vehicle, having equity in your car can make a big difference.
As long as your vehicle is worth more or less than what you paid on its loan, you should be in good standing.
For example, let’s say you want to trade in a vehicle that has a present value of $30,000, and your loan balance is $25,000. Funding Fee on VA loan.
In this case, it is easier for the dealer to take the vehicle as a trade-in. They can simply pay off the loan and apply $5,000 of equity towards the purchase of a cheaper car.
Trading in a Financed Car With Negative Equity
Negative equity in the vehicle or upside means that your loan balance exceeds your car’s current value.
A lot of vehicle owners have negative equity, but they may not realize it is a problem until they try to trade it in for a different car.
The difference between the current trade-in value of your vehicle and the amount owed on the loan will not be smoothed out.
If you have negative equity in a financed car, you need not worry. If you want to trade in for a cheap vehicle, you need to do one of two things.
Your first option is to pay the difference out of pocket. It would be appropriate for you to ask the dealer if this amount can be included in the new loan.
Rolling over the loan balance is a practice that is quite common among car buyers, but is not really recommended.
When this is done, the buyer immediately turns even more upside down in the new car, and this can create a vicious cycle that is difficult to avoid.
In addition, rolling the negative equity into new debt may not even be possible. It depends on how much negative equity there is and whether the lender in question is willing to finance this additional cost.
Generally speaking, a lender will likely approve a rollover if the amount of negative equity is minimal (about $1,000 to $2,000).
But most lenders are reluctant to roll large amounts of negative equity into new debt.
Of course, there are exceptions to every rule. Sometimes, captive lenders (lenders tied to specific automakers) have a large inventory of a certain model they want to sell.
When this happens, they can allow buyers to roll more negative equity into the debt on this particular model.
When Trade a Financed Car a Good Dicision?
At Birchwood Credit Solutions, we encourage our customers to achieve their freedom by driving a vehicle that suits their lifestyle.
If that means trading in a financed vehicle, we’re here to support you on that journey. Here are our top reasons why a trade-in might be a good fit for you:
In addition to your loan payments, your current vehicle is costing you extra money that you didn’t keep track of.
This often happens when your vehicle is full of gas, requires special parts or additional maintenance.
If you find you can’t afford the extra costs, trade it in for a smaller vehicle or a model with fewer bells and whistles.
If the dealership is offering additional incentives. At the end of the year – October through December – dealerships are looking to make room for the New Year’s model. You can get a great deal that makes the trade-in worth it.
If you have done your research. We always encourage our customers to research the vehicle type themselves before visiting the dealership.
This will ensure that you can afford the new payments and are happy with your new loan.
Can You Trade in a Damaged Financed Car?
Yes, You can trade in a damaged financed car. But when you do so your loan balance doesn’t disappear, it still has to be repaid.
Final Words