Trading in a Financed Car: What You Need to Know: So, you have a car that you want to trade into the dealer, but there’s a catch: it’s financed, and you’re not done making payments. Are you stuck with your old car until it’s paid off? What if you owe more than the car is actually worth? If you’re wondering whether you can trade in or sell a financed car, the short answer is yes. Of course, there are a few important tips and trade secrets you’ll want to follow if you pursue this option. There may also be instances where you’re better off not trading in the car. We’re going to take a look at best practices, and by the end, you’ll be better informed on whether trading in a financed car is right for you.
How Trade-Ins Work
The idea of a trade-in is to swap your vehicle for another. The new one is paid for in full by the trade-in value of your old car, or the money can be put towards a higher-priced vehicle. The vehicle can also be sold directly to the dealer, even if you still owe money on the payment plan. If you still have payments left on your car but want to sell it, a trade-in may be a more attractive offer, especially if you still need a vehicle. Essentially, the dealership purchases the trade-in car and applies the payout to the new vehicle, with the buyer responsible for the remainder of the vehicle’s cost.
When Should You Trade In a Financed Car?
The timing of a trade-in depends on how long your loan agreement is. Because you’re financing the price of the car and taxes, it’s possible to be in negative equity if you end a long-term loan early. You’re free to trade in a car at any point in the loan, but the remaining balance determines whether you’ll have positive or negative equity.
- Positive Equity: You owe less on the car than it’s worth.
- Negative Equity: You owe more than the car is worth.
Ideally, you want to have positive equity when trading in a financed car. You can build positive equity by making extra payments along the way or by ensuring you’re far enough along in payments. If you owe less than the vehicle’s worth, you can either pocket the cash or put it towards a new vehicle loan.
Negative Equity: What to Do
Negative equity is less desirable, but it’s a common situation since most cars lose value once they leave the lot. You can still trade in a car, but you’ll need to be aware of your loan status and how much is left. If you’re trying to stop monthly payments, knowing how much is left on the loan is crucial. Even without the vehicle, you’re responsible for paying off the loan. Be mindful of potential penalties from early loan closure.
Examples of Positive and Negative Equity
For positive equity: If your car is worth $10,000 and you owe $5,000, you could trade it in and pay off the loan, leaving you with a paid-off car and no more monthly payments.
For negative equity: If your car is worth $10,000 but you owe $12,000, you could trade it in, but you’d still owe $2,000. While not ideal, it’s better than owing the full $12,000.
Is Trading In a Financed Car Right for You?
Consider factors like high ownership costs, incentives from dealers, or potential for lower interest rates. If you have positive equity, a trade-in might save or even earn you money. On the other hand, if your loan is new or you’re in negative equity, it may make more sense to hold on to your vehicle.
Getting Ready for a Trade-In
Once you decide to go for a trade-in, make sure to gather your vehicle’s registration, repair history, title, and loan paperwork. Dealerships will also want to see proof of insurance and all car keys. Speak to your dealership’s financial department to get exact loan details before finalizing the trade-in.
Doing Your Research
Check out online tools to estimate your car’s value and consult resources like JD Power’s resale value rankings. This knowledge will help you negotiate a better deal with the dealership. If you’re in a lot of negative equity, sticking with your current vehicle until your financial situation improves might be the best option.
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