Trading in your car can be a convenient way to lower the price of your next vehicle. But what if you still owe money on your current car? Many car owners find themselves in this situation, wondering, “How Do You Trade In A Car That Is Financed?” The good news is, it’s absolutely possible to trade in a financed car. It just requires a few extra steps and a clear understanding of the process. This guide will walk you through everything you need to know to successfully trade in your financed vehicle and drive away in your new car.
First, it’s crucial to understand that when you trade in a financed car, you’re essentially asking the dealership to handle the remaining loan balance on your old vehicle. This means the trade-in process is not just about the value of your current car, but also about your existing loan. Here’s a breakdown of the key steps involved.
The first step is to determine your loan payoff amount. This is the exact amount you still owe to your lender. You can usually find this information on your loan statement, through your lender’s website, or by calling them directly. Knowing this figure is essential because it will determine your equity situation – whether you have positive equity (your car is worth more than you owe) or negative equity (you owe more than your car is worth).
Next, you need to assess your car’s trade-in value. There are several online tools and resources like Kelley Blue Book or Edmunds that can help you estimate your car’s market value based on its make, model, year, mileage, and condition. Getting a realistic estimate will give you a benchmark when you start negotiating with dealerships. Keep in mind that the actual trade-in value offered by a dealership might be slightly lower than these estimates, as they need to factor in reconditioning and resale costs.
Once you have these two key figures – your loan payoff amount and your car’s trade-in value – you can understand your equity position.
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Positive Equity: If your car’s trade-in value is higher than your loan payoff amount, you have positive equity. This is the ideal scenario. The dealership will pay off your existing loan, and the remaining amount can be used as a down payment for your new car, reducing the overall cost.
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Negative Equity: If your loan payoff amount is higher than your car’s trade-in value, you have negative equity, also known as being “upside down” on your loan. This is a more complex situation, but still manageable. You have a few options:
- Roll Over the Negative Equity: The most common approach is to roll the negative equity into your new car loan. This means the outstanding amount from your old loan is added to the loan amount for your new vehicle. However, this increases your new loan amount and your monthly payments, and you’ll be paying interest on a larger sum.
- Pay Off the Difference: If possible, you can pay the negative equity out of pocket. This reduces the amount you need to finance for your new car and is generally the financially wiser option.
- Wait to Trade-In: If you are significantly upside down, it might be beneficial to wait until you’ve paid down more of your loan and your car’s value catches up.
When you go to the dealership, be transparent about the fact that you’re trading in a financed car. Shop around at different dealerships to get multiple trade-in offers. Don’t be afraid to negotiate the trade-in value separately from the price of the new car. This will help you ensure you’re getting the best possible deal for your trade-in.
During the negotiation process, the dealership will appraise your car and give you a trade-in offer. Once you agree on a trade-in value and the price of your new car, the dealership will handle the paperwork to pay off your existing loan. They will typically send a check to your lender to cover the remaining balance.
It’s important to carefully review all the financing documents before signing anything. Make sure you understand how the trade-in value is being applied, how any negative equity is being handled, and the terms of your new car loan.
Trading in a financed car is a common practice. By understanding your loan payoff, your car’s value, and the different options available, you can navigate the process confidently and make informed decisions to get the best possible deal when trading in your financed vehicle. Remember to do your research, negotiate effectively, and prioritize your financial well-being throughout the process.
