How to Trade a Car When You Owe Money on it?
Can you trade a car with a loan on it? Yes, it can be difficult. You can undoubtedly trade your vehicle even if you’ve got some payments on it remaining.
You need to be very careful while you are trading in a vehicle with a loan on it. You have to be in control of all the financial transactions and not your dealer.
When you are trading your car, and you still owe money, there are two situations which can arise:
- You have positive equity. If you have a vehicle that is worth more than the amount of your loan, it’s a good situation. This difference between the amount of the car and the loan is called positive equity. It is nearly the same as having money which you can apply to buy a new car.
- You have negative equity. If you have a vehicle that has a value less than the amount of loan you owe is called negative equity. It’s also called being “upside-down” or being “underwater” in financial terms. When you are trading a car as a negative asset, you have to pay the difference between your balanced loan and the trade value. You can pay this difference with cash or another investment.
Before we take a look at how to handle these situations, let’s take a brief look at the background of car trading.
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How Trading in Car Works?
When you trade your car to a dealer, its value is the substrate from the price of a new vehicle.
When you trade your car against a loan, the dealer will take the amount of the loan out and will pay it off. The dealer is also supposed to handle all the paperwork like transfer of titles and the legal ownership of the vehicle.
To deal with the car that is not entirely paid off, you need to bring the following documents to your dealer.
- All the loan documents. Including payoff amount and account number.
- Driver’s Licensee
- Registration Documents of your vehicle
- Vehicle keys and other accessories
- Car Insurance proof and documentation
- A printout of car’s trade-in value according to reliable sources
The value of the car and trade-off are highly negotiable in any case. To get a good deal, you need a reasonable interest rate and fair price, on both trade-off values as well as the new car. You can use tools like car loan calculator to calculate the value of your vehicle.
Pay-off Amount and Trade-in Price
If you are planning to trade a car that you still owe some amount on or one that has a title loan in Phoenix, AZ, first contact your dealer and ask him the payoff amount of your vehicle. This value can be slightly higher than your remaining balance.
There are several applications and tools available on the internet which will help you decide on a price for your car.
Compare your current payoff value trade-in value to get the best deal on your car.
The final trade-in prices are certainly negotiable. So, you first need to be aware of the type of equity you have.
Trading with Positive Equity
Let’s say you have brought a car worth $4,000, and it’s worth around $7,000 as a trade-in, then this condition will be a definite asset for trading. That means after paying your loan, you’ll have $3,000 which you can use to buy a new car.
The equity amount is deducted from the negotiated price of your new vehicle when you are buying it.
With the applied equity, you can also add some down payment amount, which will reduce the overall balance of your loan.
But, you need to provide financing on your loan for the remaining payment of your car value. The value at which you traded your car will be listed on your contract. Make sure you read the contract carefully before you sign it to ensure all the details.
The best way to get a reasonable price on your deal is handling the trade-in deal and car deal separately. Refer to the quotations from online guides while you are negotiating for an amount.
Trading with Negative Equity
If you are in the opposite situation from the one mentioned above, it’s always advisable that you wait and postpone any deals in trade-offs or car purchase until you pay off all your negative assets.
Can I Trade in My Financed Vehicle to Decrease Payments?
If you are struggling with car payments, trading your car to a less expensive vehicle offers financial relief.
Let’s say you owe equity of $8,000 on a car worth a $6,000 trade-in, instead of being on the hook for the loan; you’ll be able to pay the $6,000 by the trade. Then you’ll only have to pay $2,000 to the trader.
The dealer will be happy to suggest that you put your negative equity in the loan share of your next car. But it will immediately increase the loan value you’ll have to pay while paying for your new vehicle. It will create a more substantial loan amount for you than it already was.
Still, if you don’t have money to pay off for the negative equity, this scheme also might be worth the chance. But choose a dealer who has comparatively lower interest rates. If you are downsizing your car, your loans can be more manageable, and you can easily add the credit into your new loan account.
Try getting done with your loan within 60 months for a new one and within 36 months for a second-hand car.
You can also consider selling your car privately. It can give you more value on your vehicle.
Once you trade financed car for a new one and are done with all the negotiations, read all the documents related to it very carefully. Make sure to check the terms twice or thrice and also make sure that all the conditions are the same as the ones you agreed on.
After you pay off your loan, make sure that you get the documentation of the same in the next few days.