How to Trade in a Car With a Loan?

Even if you have a balance on your previous vehicle's loan, you may be eager to get rid of it while in the market for a new pair of wheels because you want to make room for the new ride.

If you have negative equity, which means that you owe more on your loan than your vehicle is worth, trading in a car that you purchased with a loan might cost you money. Let's look at the many alternatives available to you, determine if you have positive or negative equity, and discuss how to trade in a vehicle with a loan.

Trading in a Car with Positive Equity

The automobile you want to trade in is worth $9,500, but you still owe $7,000 on it. You have a current equity balance of $2,500 that you may use toward purchasing your next vehicle right now.

This equity is subtracted from the agreed price for the new automobile. In addition to any equity put toward the purchase of a new vehicle, you have the option of making a down payment to bring the entire sum of the loan down.

The purchase agreement for your new vehicle will include a section that specifies the value of the vehicle you want to trade in. However, the remaining amount of the car's purchase price will need to be financed, either in cash or via an auto loan. Check to see that you get paid the whole amount discussed and agreed upon.

Negotiating the price of your trade-in and your new vehicle individually is the most effective approach to maximize your value for both vehicles. You can use some relevant internet guides during your talks to ensure you are on the right track.

Trading in a Car with Negative Equity

If you are currently underwater on your auto loan, it is in your best interest to put off buying a new vehicle and trading in your old one until you have either paid off the loan in full or reached a point where you have positive equity.

However, if you have trouble keeping up with your car payments, trading in your vehicle may bring some relief. In such a scenario, the dealer will need you to hand up your trade-in vehicle in addition to the amount of the negative equity. This will enable you to purchase a vehicle that is either less costly or even a cheap used automobile.

For instance, if you still owe $15,000 on a vehicle, that is only worth $13,000 when you trade it in. You won't be responsible for the whole $15,000 since the credit for your trade-in will cover the majority of the loan, but you will be required to pay the dealer the remaining $2,000 balance. 

Caution is warranted since the salesperson will likely cheerfully propose that you roll the negative equity into the loan for your next vehicle. Although it may be handy, doing so is not a good idea since it will instantly put you in a negative equity position in the new loan. It also implies that the total amount of the loan will be more, which will result in higher interest payments.

On the other hand, if you need a car but don't have the money to pay off the negative equity and are having difficulties keeping up with the payments on your current vehicle, it can be worth the risk to take out a loan to buy a car. This may be the case if the interest rate on your new loan, whether it comes from an independent lender or a dealer, is lower than the previous one. 

Even if you elect to roll the leftover debt into the loan for the new vehicle, your monthly payments may become more bearable if you decide to downsize by choosing a less expensive vehicle.

General Steps to Take While Trading in a Car with a Loan

When you still have a loan on your vehicle, whether you have positive or negative equity, there are a few procedures that you must take to trade it in.

  • Collate Necessary Details: Dealers will most likely love to see some essential information about you and your financing. Information such as your driver’s license, proof of income and residency, vehicle title, loan payoff amount and account information, vehicle keys, and vehicle insurance.
  • Know Your Car’s Worth: You will be in a better position to bargain if you are aware of the worth of your vehicle, and you will be able to choose your new vehicle while keeping the whole of your budget in mind. There are tools that you may use on the internet to assist you in determining how much your car is worth.
  • Shop Around for the Best Deal: When you know how much your car is worth, you may shop around at several car lots and ask for an estimate on its trade-in value. You would want to get more money for trading in your car than the loan balance in an ideal scenario. This will guarantee that you have more funds to devote to purchasing your future vehicle.
  • Go for the Best: After exploring available trade-in possibilities, you will need to finish the process by collaborating with the dealer who made the best offer.