Reading How to Trade in Your Car When You Owe Money on It – updating 2022
Yes, you can exchange a car for a loan. Proceed with caution, however, and make sure you – not the merchant – are controlling the transaction.
If you’re trading in a car that you still owe money on, consider one of these two situations:
You have positive equity. If your car is worth more than the amount you owe on your loan, you’re in good shape. This difference is called positive equity and is like money that you can use to buy a new car.
You have negative equity. If your car is worth less than what you still owe, you have a negative equity car on your car loan, also known as an “upside down” or “underwater” car. If you trade in a car with negative equity, you must pay the difference between the loan balance and the trade-in value. You can pay for it with cash, another loan, or — and this is not recommended — a new car loan.
We’ll show you how to deal with each of these situations. But first a little background.
This is how car trading works
When you trade your car in at a dealer, its value is deducted from the new car price.
When you trade in a car with a loan, the dealer takes over the loan and pays it back. The dealer is also supposed to handle the paperwork, such as the title transfer that establishes legal ownership of the vehicle.
To trade in an unpaid car, bring the following items to the dealer:
Loan information, including disbursement amount and account number.
Your vehicle keys and all remote controls.
A printout of your trade-in value.
It is important to remember that both the price of the new car and the value of the trade-in are very negotiable. Overall, to get a good deal, you need to get a good interest rate on your new loan and a fair price on both the trade-in and the new car. Before you go to the dealer, use a car loan calculator to estimate those numbers and see what your new monthly car payment will be.
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Cash Out Amount and Exchange Price
If you’re planning to trade in a car that you still owe money on, first contact your car lender and ask for your payout amount (which may be slightly more than your remaining balance).
Rate your car. Look up the current trade-in value of your car in a price guide.
compare values. Subtract the payout amount from the current trade-in value of your car.
Although the final trade-in price is negotiable, you now have a sense of whether your current vehicle has positive or negative equity.
Trading a car with positive equity
Let’s say you owe your car $5,000 and it’s worth $7,000 as a trade-in. You now have $2,000 equity that you can use directly to buy your next car.
This equity is deducted from the negotiation price of the new car. In addition to the equity used to buy the new car, you can make a down payment to reduce the total amount of the loan.
However, you must provide financing — cash or a car loan — for the remaining purchase price of the car. The value of the trade-in will be listed on your new vehicle contract. Make sure you get the full agreed amount that you negotiated.
The best way to make sure you get a good price for your trade-in and your new car is to be negotiated individually. Refer to the prices listed in the online guides in your negotiations.
Your car buying cheat sheet
Get quick nerdy tips on how to streamline the car buying process even before you hit the dealership.
Trading a car with negative equity
If you are upside down on your car loan, it really is better to put off your new car purchase and trade-in until you’ve paid off the loan — or at least until you have positive equity. But if you’re struggling to make car payments, trading your vehicle can help by allowing you to switch to a cheaper car or even a cheap used car. In such a case, you must give the trader your trade-in plus the negative equity amount.
Let’s say you owe $10,000 for a car with a trade-in value of $9,000. Instead of being on the hook for the entire $10,000, the trade-in credit covers most of the loan, and you pay the trader the $1,000 difference.
Attention: The dealer often likes to suggest rolling the negative equity into the loan for the next car. While this is convenient, it is unwise as it will immediately turn you upside down on the new loan. It also means you create a larger loan amount and pay more interest.
However, if you need a car but don’t have the cash to pay off the negative equity and are struggling to keep up with your current car rates, it might be worth the risk. This may be the case if your new loan – either from an independent lender or from the dealer – has a lower interest rate. If you decide to downsize by buying a cheaper car, your payments may become more manageable even if you roll the remaining debt into the new car loan.
When setting up your new loan, avoid extending the loan term beyond 60 months for a new vehicle or 36 months for a used vehicle. Also note that you would probably get a better price Sell car privately than to exchange it.
When you’re done negotiating your auto deal and trade-in, review the contract carefully to make sure you have all the agreed terms in writing. Check the numbers with your own calculator.
Then, a few weeks after closing the deal, check to see if your loan is repaid. The lender should also mail documentation that the loan is paid off.
So the article “How to Trade in Your Car When You Owe Money on It” has end. Thanks you and best regard !!!