There are still possibilities for trading in your automobile if the time has come to purchase a new vehicle but you haven’t finished paying off your loan. The procedure will need some forward planning and vary based on your equity status.
If you have positive equity, your automobile is worth more than the remaining balance of the loan. It’s a terrific place to be right now. It enables you to use the extra value against the purchase price of the next car.
A trade-in might be more difficult if you are underwater on your loan or have negative equity. This indicates that you owe more money on the car than it is worth, and you will be required to repay the difference after the trade-in value has been determined.
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How to trade in an unpaid-off vehicle
Trading in a vehicle before you pay it off is frequent. When you still owe money on your automobile, there are a few necessary actions to do. You may use the equity in your existing car as a down payment if you have positive equity. Trading in your automobile for a less expensive model might still help you recover some of your losses, even if you have negative equity.
Gather the required paperwork
Dealers will want to see the following basic information about you and your loan:
- your license to drive
- Income and residency documentation
- Payoff amount and account details for a vehicle title loan
- keys to a car
- automobile insurance
Determine the trade-in value of your automobile.
You may determine the value of your automobile using tools like Edmunds or Kelley Blue Book (KBB). Knowing the worth of your automobile might help you bargain and pick a new one while keeping your budget in mind. It will also assist you in determining if your equity is positive or negative. To establish whether you are upside-down or not, deduct the amount of your outstanding loan from the typical trade-in value.
Read More; Selling a motor vehicle with a lien
When you are aware of the worth of your car, you may visit dealers and online exchanges like Carvana and Vroom to get trade-in estimates. You don’t have to trade in your existing vehicle at the dealership where you purchase your replacement vehicle. Take the time to check what the dealers have to offer, then compare it to what you learned from KBB and Edmunds.
Ideally, you’ll be able to trade in your car for more money than what’s still owed on the loan. You’ll have additional money as a result to spend toward your next vehicle. If not, attempt to reduce your losses by negotiating as closely as you can to the balance of your loan.
Close the sale
Once you’ve looked at trade-in possibilities, work with the dealer to finish the transaction. Even while some dealers could be ready to do this task for you, you should leave with a check that you can use to pay off your trade-in and provide to your lender. Even if they do, be sure to follow up to make sure the money ends up where it should.
If you have equity, you may use some of the remaining money toward the down payment on another car. Start looking for your future automobile from this point on by comparing the current auto loan rates.
Reasons not to trade in a vehicle with a negative equity
It is advised to hold off on trading in your present car until you are no longer underwater if you want to buy a new one but have negative equity on your current loan. You put your own safety and the safety of your bank account by refinancing the loan into a new one.
Although it’s probable that dealerships may want you to roll over your negative equity into your new car, doing so would result in higher interest rates and loan amounts, neither of which you desire.
Consider it this way: Motorists who decide to proceed with a trade-in while having negative equity are liable for both the balance of the outstanding loan and the cost of the new vehicle. In essence, you are continuing to pay for a vehicle that is no longer in your possession, which raises the possibility that you may default on your next auto loan.
Other options besides trading in your automobile
Even if you choose not to trade in your automobile, you could still be able to gain from the current highly competitive used car market.
A private sale can result in a higher profit for you. Even if you need your lender’s approval to sell, a private sale can provide you extra money to put down on your next vehicle.
Instead of selling or trading in your automobile, continue paying your payments. Wait to switch if you don’t need another automobile until your financial situation has improved.
Get a better deal on your auto loan by refinancing. This might lower the overall amount of interest you pay, which would help you avoid having a loan with negative equity.
You may start looking around for the finest trade-in offers after you know how much your car is worth in relation to how much you owe. You ought to be able to locate a dealer that will take vehicles that haven’t been fully paid off since the majority of customers don’t keep their vehicles for the whole loan period.