Introduction:
Are you looking to make a financed car trade-in before paying off the loan? Although it may look like a simple procedure, there are many things you need to keep in mind to ensure it is the ideal investment.
A common scenario is when the vehicle’s worth is lower than the loan amount. In that case, the owner must clear the remaining loan balance to complete the sale process. Plenty of such scenarios are possible other than what we have mentioned above. In this article, we will answer everything regarding the trade of a financed car to clear all the doubts adequately.
How is trading a financed car done?
There are a few simple parameters used by the car dealership for exchanging a new car with an old one with an outstanding loan. Look at the major steps involved in this process below:
1. Calculating the Loan BalanceThe first step is to determine the loan payoff, which can be done by checking the monthly statement or connecting with the institution that has financed the car.
It is also possible to obtain the information of a loan account by logging into the official site or app of the lender.
2. Determining the Value of Financed CarThe value of your present car will be determined according to different parameters. It may include using online resources like Consumer Reports and Kelly Blue Book to make an estimate.
It can be followed by a physical inspection to decide whether the car trade-in is possible or not.
3. Positive Equity if the loan balance of your car is less than the trade-in offer, the remaining amount will be adjusted by the dealership towards the purchase of the new car. This amount is considered positive equity and works to reduce the burden while paying a down payment for a new car.
For instance, if someone has a loan payoff of $7,000 on their financial car, while its trade-in value is $11,000, the loan will be paid off, and the remaining amount will used for the next purchase. The new car financing will be performed after deducting this amount.
4. Negative EquityIf the trade-in value provided by the car dealership is less than the loan balance, you have negative equity and need to pay the remaining amount in full.
For instance, the value of your car is estimated at $5,000, while the remaining loan amount is $6,500. In that case, you can consider paying the loan full or rolling this balance to the new car financing.
Things to Take Care of Before Trading In a Financed Car
If you believe car trade-in is the ideal move, there are plenty of things you will have to take for the best returns. Have a look at those crucial aspects in detail below:
1. Do Your ResearchUnderstanding the car’s present value is an extremely crucial process, and it is recommended that you do your research before planning to trade in. Consider using online resources like Kelley Blue Book to learn the current value of a financial car.
Mention the vehicle’s repairs and conditions clearly for the right estimation. Also, there is a chance you might not get the same price because the car trade-in value usually stays on the lower side.
2. Try to Make the Loan Amount LowerOnce you get information about car value, you should contact your lender to find out how much loan you still owe. It should be compared with the trade-in value to understand the calculation better.
Although it is a personal choice, the experts recommend making a car trade-in only when the loan is less than the current value. It will help in minimizing the burden of buying a new car.
3. Negotiating Both Trade-in and Purchasing SeparatelyA common mistake people make is not making separate negotiations for trade-in and new car purchases. It can be highly useful for getting the best possible figure while buying a new vehicle.
The majority of car dealerships try to ditch the buyers by combining trade-in and purchasing in a single transaction. The reason is a chance to make great profits while transforming two transactions into a single one.
4. Exploring Loans OptionsIt is recommended that you explore the various loan options available while making new car financing. The most convenient one is letting the car dealership take care of everything. They will assist you in getting the options from multiple lenders.
However, it is essential to remember that these dealers receive a commission for arranging the loan options that might increase the interest rate. If you want to save this money, we recommend connecting with financers directly for a better interest rate.
What are the Advantages of Trade-in a Financed Car?
If you plan to trade in your financed car, it is important to understand its advantages.
- Minimizing Monthly PaymentsIf someone has positive equity while trading in their car, it can assist in reducing the monthly payment for new car financing. On the other hand, you can even lower the monthly payment even with negative equity if you choose to buy a less expensive vehicle.
- Using Positive EquityPeople who get positive equity while receiving the trade-in offer can think about using it as a credit and reducing the cost of the new car. It won’t only reduce the loan amount but also ensure a lower monthly payment. There is a chance that you might not need a down payment if positive equity gets on the higher side.
What are the Risks Associated with Trade-in a Financed Car?
Understanding the associated risks of a trade-in financed car holds equal importance to the benefits one can enjoy. Knowing about them will ensure you can conveniently decide whether trading your car is right or not.
- Taking Another Loan with Negative EquityGetting new car financing may make things tougher for people to afford the monthly payments. If you have a negative equity, it will add to the new loan and can lead to a higher monthly payment.
- Getting Lower Trade-in ValueMost people might think trading in a financed car looks attractive and convenient, but there is a huge possibility of not getting the same value as selling the car directly to a buyer. We have seen instances where people lose thousands of dollars while making the trade-in.
Conclusion:
Having the right knowledge about the car trade-in will make sure one can easily find a deal with a lower interest rate and monthly payment on the new vehicle. It is essential to do research and follow the information mentioned in this article.
Also, monitor your credit score regularly to ensure you don’t have trouble buying a new vehicle. If you still have any queries related to trade-in value or anything related, feel free to write about them in the comment section!
