Can I Trade in My Car if I Still Owe on It

Yes, you tin trade in a motorcar with a loan. Merely proceed with circumspection and make sure you — not the dealer — command the transaction.

If you're trading in a car you lot still owe money on, you lot're looking at one of these two situations:

• You take positive equity. If your machine is worth more than than the amount yous owe on your loan, you're in proficient shape. This difference is called positive disinterestedness and it's like having money that yous tin utilise toward the purchase of a new auto.

• You have negative disinterestedness. If your car is worth less than what you still owe, you lot take a negative disinterestedness auto also known as being "upside-down" or "underwater" on your car loan. When trading in a motorcar with negative equity, you'll have to pay the deviation betwixt the loan residue and the trade-in value. You can pay information technology with cash, some other loan or — and this isn't recommended — rolling what you owe into a new auto loan.

Nosotros'll show you how to handle each of these situations. But commencement, a piddling background.

How trading in a automobile works

When y'all trade in your car to a dealership, its value is subtracted from the price of the new auto.

When you merchandise in a car with a loan, the dealer takes over the loan and pays information technology off. The dealer is also supposed to handle the paperwork, such as the transfer of the title, which establishes legal buying of the vehicle.

To trade in a automobile that's not paid off, bring the following items to the dealership:

• Loan information, including payoff corporeality and account number.

• Driver'south license.

• Vehicle registration.

• Your vehicle keys and any remotes.

• Proof of insurance.

• A printout of your trade-in value.

It's of import to keep in mind that both the price of the new motorcar and the value of the trade-in are highly negotiable. To get an overall good deal, you'll need to get a good involvement rate on your new loan and a fair price for both the trade-in and the new automobile. Before you go to the dealership, use a motorcar loan reckoner to estimate these numbers and run across what your new monthly car payment volition be.

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Payoff corporeality and merchandise-in price

If you plan to trade in a car you still owe coin on, first contact your auto loan lender and inquire for your payoff amount (which could be slightly college than your remaining remainder).

Toll your car. Expect upward the current trade-in value of your car on a pricing guide.

Compare values. Subtract the payoff amount from your car's current trade-in value.

Though the last trade-in cost is negotiable, yous'll at present have a sense of whether y'all have positive or negative equity in your current vehicle.

Trading in a motorcar with positive equity

Say y'all owe $5,000 on your automobile, and it's worth $7,000 as a trade-in. You now have $ii,000 of disinterestedness you can apply straight to the buy of your next automobile.

This equity is deducted from the negotiated price of the new automobile. In addition to any equity applied to the new motorcar purchase, you tin make a downwards payment to reduce the overall residue of the loan.

But you'll demand to provide financing — cash or an auto loan — for the remaining purchase price of the car. The value of the trade-in will exist listed in the contract for your new car. Make certain you are given the full agreed-upon amount you negotiated.

The all-time manner to ensure that y'all become a good price for your merchandise-in and on your new machine is to negotiate each i separately. Refer to the prices listed in the online guides during your negotiations.

Your Motorcar-Buying Cheat Sheet

Go Nerdy quick tips on how to streamline the car-buying process even before you hitting the dealership.

Trading in a motorcar with negative disinterestedness

If you're upside-down on your car loan , information technology'southward really ameliorate to postpone your new auto purchase and trade-in until you pay off the loan — or at least until you lot have positive equity. Simply if yous're struggling to brand machine payments, trading in your vehicle can provide relief by assuasive y'all to downsize to a less expensive car or even an inexpensive used motorcar. In such a case, you lot'll need to give the dealer your trade-in, plus the amount of the negative equity.

Say you owe $10,000 on a machine with a merchandise-in value of $9,000. Instead of being on the hook for the whole $x,000, the trade-in credit will cover well-nigh of the loan and yous'll pay the dealer the $1,000 divergence.

Beware: the dealer will often happily suggest rolling the negative equity into the loan for your next automobile. Though convenient, this is unwise because information technology will immediately brand you upside-down in the new loan. Information technology also means that you lot're creating a larger loan amount and paying more interest.

Nevertheless, if you lot need a car simply don't have the money to pay off the negative equity and are having trouble keeping up with your current car payments, it might exist worth the risk. This tin can be the example if your new loan — from either an independent lender or the dealer — has a lower interest rate. If you decide to downsize by purchasing a cheaper car, your payments may go more manageable even if you roll the remaining debt into the new car loan.

As you set up your new loan, avert extending your loan term for more than 60 months for a new automobile or 36 months for a used one. Also, know that you lot would likely go a better price selling your motorcar privately than trading information technology in.

Final steps

Once you're done negotiating your automobile bargain, along with the trade in, review the contract advisedly to make sure all the terms you agreed on are in writing. Double-check the numbers with your own reckoner.

And then, a few weeks subsequently you've completed the deal, check that your loan is paid off. The lender should also ship documentation in the post that the loan is settled.

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Source: https://www.nerdwallet.com/article/loans/auto-loans/trade-in-car-when-you-owe-money