Can You Trade In a Financed Car?

Introduction

Trading in a financed car can be a viable option if you're looking to upgrade or switch vehicles. However, the process involves several considerations, especially if you owe more on your loan than the car's trade-in value. This article will guide you through the steps, pros and cons, and tips to make the most out of trading in a financed car.

AutoScout24: Buy & sell cars

AutoScout24 GmbH

Find over 2 million new & used cars, vans or motorcycles

Auto & Vehicles

Download (157.4 MB)

Understanding Equity in Your Car

Before trading in your financed car, it's crucial to understand the concept of equity. Equity is the difference between your car's current market value and the remaining loan balance. There are two types of equity:

Positive Equity: When your car's market value is higher than the loan balance. This can be used to reduce the cost of your new car.
Negative Equity: When your car's market value is lower than the loan balance. This means you owe more than the car is worth, also known as being "upside-down" or "underwater" on your loan.

Steps to Trade In a Financed Car

Check Your Car's Value and Loan Balance: Use online tools like Kelley Blue Book or NADAGuides to estimate your car's trade-in value. Contact your lender to get the payoff amount for your loan.
Find a New Car: Start shopping for a new or used vehicle that fits your budget. Use online calculators to estimate monthly payments based on your down payment, credit score, and loan period.
Get Trade-In Offers: Visit multiple dealerships to get trade-in offers. This will help you negotiate a better deal.
Review the Paperwork: Ensure all paperwork is in order, including your loan account number, loan balance, driver's license, vehicle registration, car keys, and proof of insurance.
Complete the Trade-In: Once you agree on a trade-in value and the price of the new car, complete the necessary paperwork. Confirm that your old loan is paid off by the dealer.

Pros and Cons of Trading In a Financed Car

Pros

Lower Monthly Payments: Trading in for a cheaper car can reduce your monthly payments.
Better Loan Terms: You may qualify for better interest rates and loan terms on the new vehicle.
Positive Equity: If you have positive equity, it can be used to lower the cost of the new car.

Cons

Negative Equity: If you have negative equity, you may need to pay the difference in cash or roll it into your new loan, increasing your debt.
Higher Monthly Payments: Trading in for a more expensive car can increase your monthly payments, impacting your budget.
Depreciation: New cars depreciate quickly, which can put you underwater on your new loan soon after purchase.

Tips to Maximize Your Savings

Improve Your Credit Score: A higher credit score can help you qualify for better interest rates and loan terms.
Negotiate Trade-In Value: Use the trade-in value estimates to negotiate a better offer from the dealership.
Consider Dealer Incentives: Look for promotions and incentives that can increase your trade-in value or reduce the cost of the new car.
Make a Higher Down Payment: If possible, make a larger down payment to reduce the loan amount and monthly payments.
Wait for Positive Equity: If you have negative equity, consider waiting until you have positive equity before trading in your car.

Conclusion

Trading in a financed car is possible, but it requires careful consideration of your financial situation and the terms of your current loan. By understanding equity, following the necessary steps, and weighing the pros and cons, you can make an informed decision that best suits your needs. Always aim to maximize your savings by improving your credit score, negotiating trade-in values, and taking advantage of dealer incentives.