How To Trade In A Car That Is Not Paid Off

Trade in a car

It takes a few extra steps to trade in a car that you haven’t paid off. Knowing all the numbers in the deal is one of them.

Yes, you may trade in a car if you have a loan. However, proceed with care and ensure that you, not the dealer, manage the transaction.

If you’re trading in a car on which you still owe money, you’ll be in one of two situations:

  • You have a positive equity position. You’re in excellent condition if the value of your car exceeds the amount owed on your loan. This difference is known as positive equity, and it is equivalent to having money to put toward the purchase of a new car.
  • You have a negative equity position. If the value of your car is less than the amount you still owe, you have a negative equity car, often known as being “upside-down” or “underwater” on your car loan. You must pay the difference between the loan debt and the trade-in value when trading in a car with negative equity. You may pay it in cash, with another loan, or by rolling what you owe into a new auto loan, which is not advised.

We’ll teach you how to deal with each of these scenarios. But first, some backstory.

How does trading in a car work?

When you trade-in your car at a dealership, the value of the trade-in is deducted from the price of the new car.

When you trade in a car with a loan, the dealer assumes responsibility for the debt and pays it off. The dealer is also responsible for handling the documentation, such as the title transfer, which establishes legal possession of the car.

  • To trade in a non-paid-off car, bring the following things to the dealership:
  • Loan information, including payoff amount and account number.
  • Driver’s license.
  • Vehicle registration.
  • Your vehicle keys and any remotes.
  • Proof of insurance.
  • A printout of your trade-in value.

It’s important to remember that both the price of the new car and the value of the trade-in are negotiable. To obtain a decent bargain overall, you’ll need a reasonable interest rate on your new loan as well as a fair price for both the trade-in and the new car. Before you go to the dealership, utilize a car loan calculator to estimate these figures and determine your new monthly car payment.

Payoff amount and trade-in price

If you want to trade in a car on which you still owe money, contact your auto loan lender beforehand and request your payback amount (which could be slightly higher than your remaining balance).

Price your car. Use a pricing guide to determine the current trade-in value of your car.

You may find price guides online, such as Kelley Blue Book and Edmunds.

Values are compared. Subtract the payback amount from the current trade-in value of your car.

Even if the ultimate trade-in price is negotiable, you’ll now know if you have positive or negative equity in your existing car.

Trading in a car with positive equity

Assume you owe $5,000 on your car and it’s worth $7,000 in trade-in value. You now have $2,000 in equity that you may use towards the purchase of your next car.

This equity is taken from the new car’s agreed price. You may make a down payment to decrease the entire sum of the loan in addition to any equity used for the new car purchase.

However, you’ll need to offer financing — either cash or an auto loan — for the remainder of the car’s purchase price. The trade-in value will be included in the contract for your new car. Make certain that you get the whole agreed-upon amount.

The easiest method to guarantee that you receive a decent deal on both your trade-in and your new car is to discuss them individually. During your talks, keep the rates indicated in the online guides in mind.

Trading in a car with negative equity

If you’re upside-down on your car loan, it’s best to put off your new car purchase and trade-in until you’ve paid off the debt — or at least have positive equity. However, if you’re having trouble making car payments, trading in your car may help by enabling you to downsize to a less costly car or even a cheap used car. In this instance, you must pay the dealer your trade-in value plus the amount of the negative equity.

Assume you owe $10,000 on a car with a $9,000 trade-in value. Instead of being responsible for the whole $10,000, the trade-in credit will cover the majority of the loan, and you’ll pay the difference to the dealer.

Be cautious: the dealer will often enthusiastically recommend rolling the negative equity into the loan for your next car. Though easy, this is not a good idea since it will instantly put you in the negative on the new loan. It also implies that you are making a greater loan and paying higher interest.

However, if you need a car but don’t have the money to pay off the negative equity and are struggling to make your existing car payments, it may be worth the risk. This is true if your new loan, whether from an independent lender or a dealer, offers a cheaper interest rate. If you opt to downsize by buying a less expensive car, your payments may become more affordable, even if you roll the leftover debt into the new car loan.

Avoid extending your loan term for more than 60 months for a new car or 36 months for a used car when setting up your new loan. Also, keep in mind that you will most likely obtain a higher price for your car if you sell it privately rather than trading it in.

The last steps

When you’ve finished negotiating your car purchase and trade-in, thoroughly study the document to ensure that all of the conditions you agreed on are in writing. Use your own calculator to double-check the figures.

Then, a few weeks after you’ve made the transaction, double-check that your loan has been paid off. The lender should also deliver documents indicating that the debt has been paid through the mail.

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