You can trade in almost any car for a new set of wheels, including a car with a loan. A car with a loan is an automobile that you’re still paying off in installments.
Can I Trade in a Car I’m Still Paying Off?
You can certainly trade in a car you’re still paying off. This is common practice for most car dealerships.
Does My Car Loan Disappear If I Trade in My Car?
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.ADVERTISEMENT – CONTINUE READING BELOW
Are There Any Risks Linked with Trading in My Car with a Loan?
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:
- Taking out another car loan could stretch your budget.
- Getting into more debt could put you into negative equity. The Federal Trade Commission explains negative equity in this article.
How Do I Trade in a Car with a Loan?
The following steps occur when you trade in your car with a loan:
- You find a new car that fits your budget. Completing this step first makes sure you have a car when you trade in your existing one.
- You confirm your car’s trade-in price. Your car’s trade-in value is your equity. It is subtracted from the cost of your new car.
- You bring paperwork to the dealership. NerdWallet states the dealer needs the following information to trade in your car:
- Your loan account number
- The amount owing on your loan
- Your driver’s license
- Your vehicle registration
- Your vehicle keys and remotes
- Proof of your insurance
- A print-out of your trade-in value
- The dealership contacts your lender. The dealer contacts your bank or financial institution and repays your original loan in full, as AutoTrader explained.
- The dealership handles the paperwork. Your dealer transfers the title of your old car into their name and your new car into yours.
What Happens to My Old Car After the Title is Transferred?
It’s up to the dealer to decide what happens to your car after you trade it in. They may sell it to another customer or auction it off to another dealer.
What Should I Do After Negotiations?
Many people work up to negotiating the fairest price for their new vehicle and trade-in. While these steps are important, your responsibilities don’t stop there. Complete each of these steps in order for a successful trade-in:
- Review your contract. Make sure your contract contains all the terms you agreed on. Check all the calculations for accuracy before signing.
- Confirm the original loan is paid off. After a few weeks, call your original lender and confirm your dealer settled your first loan. Ask for documentation confirming this for your own records.
Is It Smart to Trade in a Car with a Loan?
Whether trading in a car with a loan is the right decision for you depends on your circumstances. Trading in a car with a loan might be the smartest thing if:
- Your car has high ownership costs. If your car uses a lot of gas, often needs repairs, or needs specialty parts, it can be financially savvy to trade it in. Choose a smaller car or a more modern one to save money in the long run.
- The dealership has great incentives. Dealers often have promotions that make trading in your vehicle more attractive, according to Birchwood Credit. For example, many dealers have end of financial year deals to clear old stock and make way for new models.
- You’ve done your research. If you’ve researched your options and know what you want, it’s often smarter to trade your car in rather than wait. Visit your dealer to crunch the numbers and see whether you can strike a deal you’re happy with.
Is It Ever a Bad Idea to Trade in a Car with a Loan?
There are several circumstances where it makes more sense to pay more off your car before trading it in. You might want to delay your trade-in if
- Your loan is fairly new. Cars depreciate as soon as they leave the dealership. Waiting until you’ve had your car a little while helps the value even out. If you wait a little, you won’t take such a financial hit.
- You’ll get penalized. Some lenders charge prepayment penalties for paying out loans before the end of the loan period. These extra charges, spelled out in the car loan terms, help offset the interest your lender won’t get when you prepay. These penalties can be so steep it’s not worth trading in your car until the loan is repaid.
Is a Trade-In My Only Option?
Selling your car privately, instead of trading it in, is another good option for many motorists. You can sell your car privately whether you own it outright or you’re paying off a loan. There are many websites that make selling a car privately easy.
The price you’ll receive for your car through a private sale is usually more than its trade-in value, according to The Balance. That’s because the dealer wants to make money on your vehicle. If you’re still paying off your car, you can use the money you make from your private sale to pay down your loan.
If the money you make from your private sale doesn’t cover your loan balance, speak to your lender. They can transfer your car loan to a personal loan or suggest another good option for repaying your debt.
Since you don’t have a dealer working on your behalf, you’ll have to transfer your car’s title to its new owner. The transfer of ownership form is on the back of most car titles.
Selling your car that still has an outstanding loan is a viable option for some people. Do your research and see if this option is right for you.