If your car is worth more than the amount you owe on your current car loan, it is known as positive equity. Lets say you have been making repayments and the current balance of your car loan is $3,000. You take your car into a dealership to trade it in, and the dealer offers you $5,000 for it. What may happen in this situation is the dealer takes your car, pays off the loan and puts that extra $2,000 towards the purchase of your new vehicle, lowering the purchase price of the car and the amount of the new loan.
Rolling over a loan means that a dealership pays off the remaining balance of one loan and adds that amount to a new loan. This may be the best option if you trade in your vehicle, have negative equity, and purchase another car. Functionally, youre paying off the previous auto loan at the same time that youre making payments on the new one.
The lender maintains ownership of the car during a hire purchase contract until you have paid off all of the agreement. Since they are the legal owner, you are not legally able to sell or trade in the car.
What you need to do is end the hire purchase contract early. There are a few ways you can do this, but in all cases you should be careful as you can easily end up out of pocket.
You can return the car if you have repaid less than half of the agreed loan. Before the lender lets you return the car you must have paid for half of the cars value. This means you need to pay the outstanding monthly instalments to bring what you have paid so far up to half of the cars value. If you have paid at least half of the total amount you may be able to return the car and cancel the agreement under the voluntary termination clause in your contract.
If you can afford to pay off the rest of the deal in one go, then you can settle the contract and take ownership of the car. You will have to contact your lender to negotiate a settlement value but after this amount is paid, the car is yours and you can sell it on.
Your car loan doesn’t disappear if you trade in your car. However, the trade-in value of your car becomes credit towards your loan. This credit might cover the whole balance. If it doesn’t, your dealer will roll over your loan, combining the deficit with the amount owing on your new car. Consolidating what you owe into a single new loan helps you manage your payments better.
After you trade in your car or truck to the dealer, one of two things will happen. The dealer determines if they can make sufficient profit from the trade-in to warrant putting it up for sale to the general public. Or the dealer determines the reconditioning cost is excessive and doesnt allow for reasonable profit and therefore, doesnt offer the vehicle for sale to the general public and sells it to a wholesaler or takes the vehicle to wholesale auctions to dispose of.
There are some risks associated with trading a car with a loan. Considering the risks can help you decide if trading in your car is the right decision right now:
No one has ever said, I wish I could deal with more car problems. Yet, its a fact that cars will eventually have issues. They dont stay new forever. You could experience mechanical problems.
Those are the concerns that can be quite expensive. Were talking about issues like a blown engine, a head gasket leak, or a differential thats not working as it should.
You might encounter transmission problems. Even if your engine is running right as rain, your car wont drive as it should. It might not go into forward or reverse gear, or it might be leaking transmission fluid faster than you can pour it in.
Electrical issues are some of the worst. These little electrical gremlins mess with your car. What was once a reliable vehicle cant be trusted. It might shut off on you for no reason, or your windows, door locks, or air conditioning could quit. Its a pain in the neck.
Or, your car could have body damage. Your teen driver mightve been playing bumper cars by accident, or there are unexplained dents and dings after parking in your office parking spot for a few years. A fender bender could mean your car looks like its been through a warzone but its still drivable.
Logistically speaking, there are a few key things youll absolutely need to consider to successfully trade-in your vehicle.These are our top 3 things to help you feel ready-to-go when you step foot into our dealership:
Well give you all the details on three ways you can get cash for used cars and how to prepare your car for the final sale.
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What Happens When You Trade In A Car You Are Still Financing
How do I trade in my car if I have an existing loan balance on it? | Mountain View Chevrolet
There are many great reasons to finance a car and its no surprise that many car owners choose this convenient option. Financing helps you to get into a car you love at an affordable and predictable monthly cost. One thing that some consumers worry about when financing any vehicle is the possibility that their circumstances may change during the financing period of their current vehicle.
It is only natural that your life circumstances could change, and you in turn end up needing to change vehicles in the middle of your financing term. If you need a larger vehicle for a growing family, need to upgrade a work truck, or even just want a change up to a newer car that you love, you may find yourself looking to finance another vehicle while still owing money on your current car. But is it possible to trade in a financed car? Thankfully, the answer to this question is yes!
At Autorama, we are committed to helping you drive a car you love. If that means you need to trade in your current financed vehicle to finance a new one, we can help. In this article, we will help you understand what happens if you trade in a finance car. There is no need to stress about getting yourself a car you love. See our info below our apply for auto loan pre-approval online and let us help you find your perfect car.
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What Does The Car Appraiser Look For
If hes good at what he does, he will walk around the entire car to get an overall view of the body and paint condition of the vehicle, also checking the tires for tread wear.
Hell then check the currency of your tags, inspection, registration, hell inspect the windshield and all the glass for any cracks, chips, or blemishes.
He will check the fluids, open all the doors, hood, and trunk. Hell look inside the vehicle for cleanliness, he will make sure every button and switch works. If your vehicle has a navigation system, DVD player, or CD, hell make sure they operate correctly.
Hell then scan the vehicle identification number with his smartphone and check its history with a company such as AutoCheck Vehicle History Reports to make sure the vehicles title history comes back clean.
Most of these smartphone programs will also tell the appraiser about the current used car market and some average current values on the vehicle hes appraising.
As the appraiser goes through his inspection of your car hes looking for certain red flags like paint lines, wrench marks on nuts and bolts, a sputtering engine, misaligned carpet, low fluids, etc.
If he finds one of these red flags, he will look a little deeper into the area to see if he can find anything else he can use to devalue the vehicle.
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Things To Consider When You Still Owe Money On A Car
The first thing youll need to do is determine how much you still owe on your current auto loan. Its best to check with whoever is financing your loan to get the exact payoff amount.
It could be different from what you see on your most recent statement due to interest calculations or possible prepayment penalties and other factors. Next, understand that if you owe more on the vehicle than it is currently worth, the dealer will likely shift that amount into the payments of your new vehicle.
As an example, if you owe $15,000 on the car but it is worth only $12,000, that $3,000 difference will be added into the financing for the purchase of your new car.
What you owe on your trade vs. what it is worth are two different things, said Charles Cannon, general sales manager at a BMW dealership in Texas. A lot of times, clients want what they owe on their vehicle.
But that might not match the vehicles actual value, Cannon said.
Find a new car for sale near you
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Trading For A More Expensive Car Vs A Less Expensive Car
Trading your car for a more expensive vehicle than the one you currently own , just increases your debt.
Adding your current negative equity on your trade-in to your new purchase may seem like a good idea, but its not. That is, unless youre buying a cheaper car. When you trade in your existing car for a cheaper one, youll come out ahead in your own personal finances.
Trading In A Broken Car Is Hard
Your car is bashed up like its been in a pinball machine. Scratches and dents, perhaps accident damage you need to know what to expect for a damaged car trade-in value.
Honestly, how your car looks makes a big difference with your trade valuation. It might run and drive just fine but trading in a car that needs work will hurt where it counts most: the wallet.
For most dealers, trade-ins need to be reconditioned anyway. As long as the damage isnt extensive like missing bumpers and shredded fenders, theyll take your car on trade. Because body repairs are expensive, trading in a damaged car wont be kind on your trade value.
But if your car has been deemed salvage or is an insurance write-off, you might not be able to trade it in. Dealerships dont really want to trade in a junk car because theres no one that wants to buy it from them! So what should you do with a damaged car if trading in a car that needs repair isn’t ideal? If youre wondering who buys cars that dont run, weve got the answer.
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How Does Trading In A Financed Car Work
The idea of a trade-in is either to trade your vehicle in for another that is either paid in full by the trade-in value of your old car, or the money can be put toward a higher-priced vehicle. The vehicle can also be sold outright to the dealer, however, you may still owe money on the payment plan.
If you still have payments left on your car but want to sell it, a trade-in may 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 dealership is purchasing the trade-in car and applying the payout to the new vehicle and the buyer is responsible for the remainder of the vehicleâs cost.
Research The Value Of Your Trade
Knowing your cars estimated fair market value can help you get a sense of what a dealer might offer on your trade-in and give you some negotiating power. Websites such as Kelley Blue Book and Edmunds have tools that can help you estimate your cars trade-in value based on information including the year, make and model of your car, and the number of miles on its odometer.
To get a better sense of whether you have positive or negative equity, you should compare your cars estimated trade-in value to your loan payoff amount. This includes your loan balance plus any interest and fees that have accrued, so it may differ slightly from your loan balance. Contact your lender to find out your payoff amount.
If you have positive equity, you can use what the dealer offers you for your trade-in to pay off your existing loan and use any leftover money as a credit toward the new car purchase. But if you have negative equity, youll need to decide whether to postpone your trade-in, pay down your existing loan or roll your loan balance into the new car loan.
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Ask The Dealer For A Check
The solution might sound far-fetched, however, according to Ari Janessian an auto broker and Youtuber you should be able to show the offer from Carmax or Carvana to the dealer that youre working with, and if they are unable to match the offer, then you can ask them for a check for the difference that you still owe.
That means that if you still owe $15,000 on your current car and Carmax offers you $12,000, then you can ask the dealership that youre working with for a check for $3,000 so that you can sell your car to Carmax outright so that nothing is owed on the car, and then have that extra $3,000 rolled onto the new loan of the car that youre buying.
It almost sounds too hard to believe, but the dealer has the money to do this type of transaction and it doesnt really matter to them since youll be paying the difference back on the loan anyway.
Alternative To A Trade
Buying & Selling Cars : How Does an Auto Trade-In Work?
Trading in your car at the dealership isnt your only option. You can also sell your car to a private buyer, though you may need to let your lender know first. While it may take longer, youll likely get more money for your car in a private sale than with a dealer trade-in, which could help offset any negative equity.
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The Appraiser Will Drive Your Car
He will then take your car on a test drive. He will check the odometers operation, engine idle, acceleration, brakes, alignment, and the overall handling of your car. Most test drives last 3 to 5 miles or at least one click of the odometer.
Used car appraisers that are great at what they do, have a set route they take every vehicle through. The route may consist of some highway driving, stop-and-go driving, and some rough road areas to test out the shocks.
As the appraiser inspects your trade-in, he has to decide if your car will be a vehicle to retail on the lot or wholesaled at an auction. Contrary to popular belief, most dealers actually try to break even with wholesale.
Good dealers believe, if they are making money in wholesale, theyre missing new and used car retail sales because theyre not giving enough money for trades.
How Trading In A Car Works
When you trade in your car to a dealership, its value is subtracted from the price of the new car.
When you trade in a car with a loan, the dealer takes over the loan and pays it off. The dealer is also supposed to handle the paperwork, such as the transfer of the title, which establishes legal ownership of the vehicle.
To trade in a car thats not paid off, bring the following items to the dealership:
Loan information, including payoff amount and account number.
Your vehicle keys and any remotes.
Proof of insurance.
A printout of your trade-in value.
Its important to keep in mind that both the price of the new car and the value of the trade-in are highly negotiable. To get an overall good deal, youll need to get a good interest rate on your new loan and a fair price for both the trade-in and the new car. Before you go to the dealership, use a car loan calculator to estimate these numbers and see what your new monthly car payment will be.
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