- Reading What You Need to Know – updating 2022
- How does trading a financed car work?
- How quickly can you trade in a financed car?
- How to trade in a financed car
- Is trading a financed car right for me?
Reading What You Need to Know – updating 2022
There are always options, even if you think you’re tied to a financed car. 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 to keep in mind when you decide that trading a financed car is right for you.
How does trading a financed car work?
The idea of a trade-in is to either exchange your vehicle for another that is either fully paid for by the trade-in value of your old car, or the money can be invested in a higher-priced vehicle. The vehicle can also be sold directly to the dealer, but you may still owe money on the payment plan.
If you still have payments for your car but want to sell it, a trade-in can be a more attractive offer, especially if you still need a vehicle. A seller can apply the value of their trade-in to a newer or different vehicle. Essentially, the dealer buys the trade-in car and applies the payout to the new vehicle, and the buyer is responsible for the remainder of the vehicle cost.
How quickly can you trade in a financed car?
The decision as to when to trade in a financed car depends on how long your loan agreement lasts.
“They fund the price of the car and the taxes – you have to think about that,” said a finance and insurance manager at a Montreal Subaru dealership. “If you want to go away, you pay these taxes. And if you take out a 60-month loan early, for example, you have negative equity and so far you’ve only been paying taxes.”
You can trade in a car at any stage of the loan, but the remaining balance determines whether you have positive or negative equity.
What is negative equity?
Put simply, positive equity means you owe less on the car than it’s worth on the market. So negative equity means you still owe more than the car is worth on the market and are on the hook for the rest of the money owed in the payment plan.
Think about how far along you are with your loan payment. “Many manufacturers are pushing for longer and longer financing, resulting in lower monthly payments, but it’s not the best idea,” the expert said. “It’s a depreciation.”
Trading a car with positive equity
Ideally, this is where you want to be if you’re trading in a financed car. You want to have positive equity, which means you owe less than the car is worth. You can build positive equity by making additional payments along the way, or by making sure you’re well on your way to paying off a car that’s holding its residual value well. If you owe a lot less than the vehicle is worth, you can either pocket the money or use it on a new car loan.
Trading a car with negative equity
This is a much less desirable situation, but it’s the case for most people – most cars lose value as soon as they leave the parking lot, so it’s a likely scenario unless you make additional payments or keep your vehicle its value exceptionally good. It can still work, you just need to be aware of where you are in the credit and how much is left.
“We take the car back at book value. So even if you owe $20,000 and the car is only worth $18,000, you are still responsible for that $2,000,” the expert said.
This may not be an issue for those who are in a more financially stable situation, but if the reason for the trade-in is to stop making monthly payments, it is extremely important to know how much may be left on the loan and over Success or failure can decide the trade-in process.
This means that as a seller you have to make sure that you can still pay off the rest of the loan. While the process can vary from dealership to dealership, you are essentially left with the loan to pay back to the bank even without the vehicle being tied to it.
Another important thing to think about when it comes to negative equity is how new the loan is. There are often penalties for requesting a credit pause or closeout by a merchant. This can be a simple payment of a percentage of the total balance remaining, or it could be more stringent, like a fee due for each remaining month of the loan’s life – the bank wants to make sure it doesn’t miss out on interest income during those remaining months. This varies by financial institution and depends on the original terms agreed when the vehicle was purchased.
How to trade in a financed car
Trading a financed car may seem complicated and overwhelming, but it doesn’t have to be. To navigate through the process:
Make sure all your paperwork is in order
You need your vehicle registration document, all previous job references from the workshop (if available) and the vehicle title. Even if you’re returning your vehicle to the same dealer you bought it from, you still need to make sure you bring your own credit documents with you. Don’t rely on them. Don’t forget your driver’s license, proof of insurance, and all your keys and fobs.
Find out how much you owe
This is an extremely important step when trading a financed car. You can speak to the finance department of the dealership where you bought your financed car and they can also tell you your exact loan rate, months left and total outstanding balance.
Talk to the bank if you know you’ll owe money on the trade-in
Traders are also trying to make money, and if they see you owe something on your trade-in, they’ll want to convert that into new credit for you. As this could result in a much larger loan for the new vehicle, be prepared with a solution from the bank. Speak to a financial advisor at the institution associated with the car loan for options, and bring those options to the table when speaking with the dealership about the trade-in.
Know the value of your car
Please investigate. Certain cars hold their residual value better than others. Toyotas and Subarus are two brands whose resale value is highly valued. JD Power and Associates has compiled an annual list of top resale value vehicles for you to peruse.
Know when a trade-in isn’t a good idea
If you have a lot of negative equity, it may not be a good solution for those who are in a tight financial situation. Paying off a $3,000 loan is better than another $30,000 loan on another car, even if you really want to upgrade. It’s best to hold out with your current vehicle until you’re in a better financial position to finance a new one.
Is trading a financed car right for me?
Deciding whether or not trading a financed car is right for you depends on more than just the status of your loan. It is important to consider the following:
Trading a financed car might be a good idea for you if:
Your vehicle has high maintenance costs. It’s easy to take out a loan without realizing the long-term costs involved, and not just at the bank. From gas prices to maintenance fees, some vehicles cost more than others.
You can no longer afford such a high loan. Even if you are in a negative equity situation, sometimes taking your financed car back to the dealer is the wiser financial decision.
Your dealer offers incentives at the end of their fiscal year to clear inventory. You may be able to trade your financed car in for something you might not have thought you could afford, with a lower interest rate and reduced prices. Even if the vehicles are comparable, a trade-in could essentially be a refinance when interest rates are lower, saving you money over time.
You have positive equity. If so, you can make some money or at least save money in the future. Depending on the value, your trade-in can even be enough to fully cover the cost of a new vehicle.
Consider detaining your car if:
Your loan is fairly new. There may be penalties that make the transaction a imprudent financial decision.
You have negative equity. Even if you are well advanced with your loan agreement, this can still be the case if your car has a low residual value. Research is key here, and how much of the gap you can fill depends on your personal financial situation.
Your vehicle was in an accident. Even if your vehicle normally holds its resale value, the condition of the car when you bring it back to the dealer will determine the value of the trade-in. Any repairs the dealer has to make is money out of their profits and money out of your pocket as well.
Your loan is almost paid off and your car has low running costs. This means that if your car is healthy and well-maintained, your monthly payments on gas and the occasional check-up will be reduced. Unless you really need or want a new car and are in a strong financial position to do so, you can save money by getting more miles out of your current vehicle.
So the article “What You Need to Know” has end. Thanks you and best regard !!!