How To Trade In A Car You Just Bought – Written by Kelly Guinan Written by Kelly GuinanArrow Right Sponsor in Human Capital Kelly Guinan is an editor and writer with over five years of experience in the financial industry. She is also a full-time employee of her local library, helping her community find information about financial literacy, among other topics. Kelly Guinan
Edited by Pippin Wilbers. Edited by Pippin Wilbers. Senior Editor, Auto Loans Pippin Wilbers is an editor specializing in auto loans. Pippin is passionate about breaking down complex topics like car financing and helping borrowers stay updated in the ever-changing and complex world of lending. Connect with Pippin Wilbers on LinkedIn Connect with Pippin Wilbers on LinkedIn via email.
How To Trade In A Car You Just Bought
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If your car is worth more than what you owe on the loan, it’s not a big deal to sell it before you pay it all off. But if you have negative equity, meaning you own more than the car is worth, it’s best to pay off your car before selling it. Converting negative equity into a new loan can mean you pay more than you should.
It’s usually best to pay off your car loan before you sell or trade in. Don’t worry if you have positive or negative equity on your loan. With negative equity, you should always pay off your car loan before trading in your car.
Positive equity in a car loan means you owe less on the car than you should. So, if you have $10,000 left on your loan, but your car is worth $15,000, then you have $5,000 in positive equity. If you choose to trade in your car, the first $10,000 will pay off your existing loan. The remaining $5,000 in positive equity goes toward your next vehicle as a down payment, reducing the amount you have to borrow.
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When you have positive equity in your loan, you don’t have to pay off your car loan in full before selling it if you don’t want to. You will get enough money from the trade to pay off the loan.
Negative equity is the opposite. If you still owe $10,000 on your loan, but your car is only worth $8,000, you have $2,000 in home equity. It’s what lenders and financial advisors call “the revolution.”
This is a position you do not want to be in. If you sell your car with negative equity, you’ll need to pay the remaining loan balance out of pocket or transfer the negative equity to a new loan before you can trade it in. We do not recommend transferring negative equity to a new loan, as there may be a risk of foreclosing on the new loan.
You have to borrow more money for a new loan, which means a higher monthly payment. Additionally, you’ll be in a position where you’re paying more for the vehicle than it’s worth, which doesn’t make financial sense in the long run.
I Want To Sell My Car But I Still Owe Money
Several other factors complicate this decision. Consider the actual cost of vehicle ownership. If it is old, you may end up spending a lot of money on expensive repairs. Or if it gets bad gas mileage, it can be very expensive to drive. In these cases, it may be better to trade in the car before it is paid off to save on the cost of the car.
Also, check if the lender charges a prepayment penalty. View the loan agreement. Some loans impose early repayment penalties or additional fees. The average prepayment penalty is 2 percent of the balance, so you may want to decide whether to cancel the payment.
People often trade and sell paper cars. In fact, dealers may advertise that they will pay for your car if you upgrade to a new model. But selling a car you owe is much more difficult than trading one car for another.
If you have downgraded your debt, trading it is not the best course of action. Instead, consider selling your car to a private buyer, paying off a loan, or paying it off.
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Working with a private buyer rather than a dealer will help you sell your car more. However, it is up to you to pay off the lender and transfer ownership. Sellers often do this on your behalf, so it can be an extra hassle.
Paying off a loan is impossible for most people. But if your payments aren’t breaking the bank yet, set aside extra cash to pay them back. Therefore, trading in your car does not involve transferring the balance of your new car loan.
Finally, try to get the money back at a low price. Don’t extend the term of your loan to reduce your payment – this increases your chances of default. Take the total amount you have to pay instead.
If you can’t turn your credit upside down, it may be a good idea to trade in your car for a lower option. If you have negative equity, try refinancing instead – this will allow you to lower your interest rate so you can pay less. Most importantly, don’t default on your loan balance. Work with your lender, sell your car, or find another way if you can help him out of debt.
How To Trade In A Car: Everything You Need To Know
Kelly Guinan is a freelance editor and writer with over five years of experience in the financial industry. She is also a full-time employee of the local library, helping her community find information about financial literacy, among other topics.
Edited by Pippin Wilbers. Edited by Pippin Wilbers. Senior Editor, Auto Loans Pippin Wilbers is an editor specializing in auto loans. Pippin is passionate about covering tough topics like car financing and helping borrowers.
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