Trading in a Financed Car

Back to all insights

Table of Contents

If you still owe money on your car but are eager to buy a new car, this article is for you. In a situation like yours, trading in a financed car might be a good option; however, it doesn’t mean you get rid of the hook for your current loan.

Here are a few points to consider, like how much equity you have on your current car and how much you can afford.

How to Trade in My Financed Car?

There are many reasons why individuals want to trade in their financed cars before they’re totally paid off. Maybe they simply want to upgrade to a better model, or they want to buy a car that comes with incentives and rebates.

Read More: Used Car CPO

Whatever the reason, you don’t have to wait until you’ve paid off your loan on your current vehicle. For trading in a financed vehicle, follow these below steps:

1. Check your car’s value and your loan balance

Before trading in a financed car, the first step is to consider how much your car is worth. There are some free online tools, like Car and Driver’s Car Value Estimator, to help you get an estimate on your car’s value.

The next step is to figure out how much you owe on your loan. To know this, you can ask your lender for a payoff amount document to calculate the amount of the debt, helping you find out whether you have positive or negative equity.

Positive equity means your car is worth more than what you owe, and negative equity means the remaining balance on your car loan is higher than the current market value of your vehicle. In other words, the car is worth less than what you still owe on the loan.

If you have positive equity, trading in a financed car gives you money to apply to buying the next car, helping reduce your monthly payment.

If you have negative equity, you still have to pay the loan. You can either pay all the money you owe now or add it to a new car loan and pay it off over time.

Read More: Bad Credit Car Loan

2. Create a new budget

Before trading in a financed vehicle, you need to know how much you can spend on buying the next car. Always remember, the budget you set for purchasing your next car will likely impact your current loan balance, especially in terms of whether you have positive or negative equity.

If you have positive equity, you can consider more money to put toward the purchase of the new car; if you have negative equity, you need to consider buying a vehicle at the lower end of your budget.

trading in a financed vehicle

3. Prepare for Trading-In

Before heading to the dealership, collect all the maintenance, repair, and warranty records; make sure the user manuals are in the glove box and all personal items are removed from the car.

You may need to consider minor cosmetic repair to maximize your car's trade-in value.

4. Car Shopping

Now, it's time to shop around. When you find your desired car, let the salesperson know you'd like to trade in your current car. Based on the condition of the current vehicle and the current market rate, they give you an offer. Here is where your previous research comes in handy and gives you the power to negotiate the value of your current trade-in car as well as the next desired car price.

If you got a pre-approved auto loan, bring along the letter when visiting dealerships. If the dealer works with their own lenders, they may help you get a loan with a lower interest rate.

5. Complete the Paperwork

Once you and the dealer agree on the price, you'll need to fill out paperwork for both the trade-in car and the new car. Furthermore, if you get a new loan from the dealership, you'll have to fill out the extra papers. Before submitting, review them carefully and make sure the loan payments exactly match what you're expecting to pay.

Confirm the Auto Loan Is Paid Off

The dealer wants to ensure your previous auto loan is paid off, happening when the balance is rolled over into the new loan or you pay it off in full.

A piece of advice:

When you've paid off a loan or debt, it's always a good idea to contact your lender to confirm that they've received your final payment and that you no longer owe any money.

Read More: Certified Used Cars

Can I Trade in My Financed Car with Negative Equity?

Trading in a financed car with negative equity can be challenging and definitely more expensive.

However, negative equity can't stop you from trading in a financed car. Here are some options you have:

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Ut elit tellus, luctus nec ullamcorper mattis, pulvinar dapibus leo.

1. Wait to Purchase a New Car

You are allowed to trade in a financed vehicle even with negative equity. However, you need to pay off the difference before the dealership will accept your trade-in.

If you don't want to add that extra balance to your new loan, think about waiting until you get a positive equity on your current vehicle.

2. Provide a Higher Down Payment

If you own extra cash, paying more down payment can be absolutely beneficial, helping you lower your monthly car payments, especially when you have positive equity.

The more money you can put aside in a down payment, the lower your interest rate and monthly payment will be.

3. Take Advantage of Incentives

Many dealerships might offer some considerable incentives for customers who want to trade in their vehicles. For instance, you may get a higher trade-in value if you purchase a new car and trade in your current car from the same dealership on the same day.

Our advice is that before heading to shopping, contact a few dealerships in your neighborhood and ask whether they offer trade-in deals.

4. Pay More Monthly Payment for Your Loan

If you have negative equity and still are willing to trade in your car, you should expect a higher monthly payment. If you do not qualify for a lower interest rate, think about paying more on your loan each month or each quarter.

For instance, if your monthly payment is around $350, consider if you can pay an additional $100 every few months. Any extra money you pay for paying your debt comes off your balance rather than interest, which helps you pay down your loan faster.

5. Extend Your Auto Loan

Trading in a financed vehicle with negative equity? One option is to extend the length of your loan. For instance, while you may pay more interest on an 8-year loan compared to a 4-year loan, the longer loan results in lower monthly payments. If you have this chance, it could make your payments more affordable.

Read More: The Future of the Car Market in Canada
car loan trade

Tips for Trading in a Financed Vehicle

  • Shop around: When trading in a financed car, you can shop around for dealerships. Some may offer better trade-in values, so it's always worth it to get a few offers.
  • Selling the car yourself: Usually, you can get more money if you can sell your car through a private party sale. Therefore, if you're looking for more money and don't mind the legwork, a private party sale can be a great option.
  • Knowing your car value before going shopping: Before heading to shop, do some research to understand what realistically you can get and then use this information to negotiate with the dealer.
  • Time your trade-in: Trade in your car when its value is more than the money you still owe. This extra money helps pay more for a new car.

PROS AND CONS OF TRADING IN A FINANCED CAR

Trading in a financed car has both advantages and disadvantages:

Pros:

  1. Convenience: Trading in a car is usually more convenient and less time-consuming than selling it privately.
  2. Lower monthly payments: If you have positive equity, the trade-in value can help reduce the amount you need to finance, leading to lower monthly payments on your new car loan.
  3. Tax savings: In many cases, the trade-in value can be subtracted from the new car's price before calculating sales tax, reducing the amount of tax you'll owe.

Cons:

  1. Lower trade-in value: Trade-in offers from dealerships are typically lower than what you could get from selling the car privately.
  2. Risk of negative equity: If you have negative equity, you'll need to pay off the remaining balance on your loan, or it could be rolled into the new loan, increasing your total debt.
  3. Potential for higher interest rates: Taking on more debt with a new car loan could lead to higher interest rates, especially if you have a history of negative equity or a lower credit score.
Read More: Approved Car Financing

FAQs

Can I trade in my financed car after 1 year?

Yes, it is possible to trade in a financed car after one year. However, keep in mind that the car's value may have depreciated significantly during that time, potentially leading to negative equity. It's important to consider the remaining loan balance, the car's trade-in value, and any potential financial implications before making the decision to trade in a financed car after a short period of ownership.

How soon can you trade in a financed car?

You can trade in a financed car anytime, but it's best to wait until the car's value is more than the amount you owe to avoid financial setbacks. Evaluate your situation and loan terms before making a decision.

How does trading in a financed car work?

Trading in a financed car involves the following steps:

  1. Determine your car's trade-in value by using online tools or visiting a dealership.
  2. Compare your car's trade-in value to the remaining loan balance to understand your equity position.
  3. If you have positive equity, the dealership will apply the trade-in value towards your new car purchase, reducing the amount you need to finance.
  4. If you have negative equity, you'll need to pay off the remaining loan balance or roll it into your new car loan, increasing the total amount you owe.

It's essential to consider your financial situation, loan terms, and the potential impact on your monthly payments before deciding to trade in a financed car.

What is a car loan trade?

A car loan trade is the process of trading in a vehicle that is still under an active loan agreement. The trade-in value is used to pay off the remaining loan balance, with any positive equity potentially applied towards the purchase of a new car.

What does it mean to have approved car financing?

Approved car financing means a lender has reviewed your application and agreed to provide you with a loan to purchase a vehicle. This approval indicates that the lender is satisfied with your creditworthiness, income, and other financial details, and they outline the terms of the loan, such as the interest rate, loan amount, and repayment period.

A Final Note: Visit Car Rookie for Your Next Car Purchase

If you’re considering trading in your financed car or purchasing a new one in Toronto, Car Rookie is your go-to destination. With a wide range of vehicles, competitive trade-in offers, and a team dedicated to simplifying the car-buying process, Car Rookie ensures a hassle-free experience. Whether you’re dealing with positive or negative equity, their knowledgeable staff can guide you through every step, from evaluating your trade-in to securing approved financing for your next vehicle. Start your car shopping journey today at Car Rookie and drive away with confidence!

Related Posts