If you have a car loan, you’re not alone. About 45 million Americans have car loans, according to Experian. And if you’re looking to trade-in your car, you may be wondering how to do it with a car loan.
When you trade in a car with a loan, the process can be complicated and frustrating. You may have negative equity in your financed car, which means you owe more on the car than it’s worth. This can make it difficult to get a new car loan. In this article, we’ll explain how to trade in a car with a loan and what you can do to get the best deal possible.
What Is Negative Equity And How Does It Affect Car Trade-ins?
When you have positive equity in your current car, it means the value of your car is more than what you owe on the loan. This is good because it means you have built up some equity in the car. If you trade in the car, you can use that equity as a down payment on a new vehicle.
Negative equity is when you owe more on your car loan than your car is worth. If you have negative equity, it means that you’ll need to pay off the difference between the loan and the car’s value before you can trade it in.
This can be difficult to do, especially if you’re already tight on cash. And it can make it hard to get a new loan since you’ll need to pay off the old loan first.
How Trading In a Car Works
When you trade in a car, the dealer will appraise the car to determine its value. This is typically done by looking up the value of the car in a pricing guide such as the Kelly Blue Book. The dealer will then give you a trade-in value for the car based on its condition and mileage.
To trade in a car that’s not paid off, you’ll need to pay off the remaining balance first. You can do this by sending a check directly to the lender or by including it in your new car loan.
If you’re upside down on your car loan, meaning you have negative equity, you’ll need to pay the difference between the trade-in value and the loan balance.
For example, let’s say you have a car loan with a balance of $15,000 and the trade-in value of your car is $10,000. That means you have $5,000 in negative equity that you’ll need to pay off. You can do this by making a lump sum payment or by rolling it into your new car loan.
You’ll also need to bring the following items to the dealer when you trade-in your car:
- The car’s title: This is the document that proves you own the car.
- The car’s registration: This shows that the car is registered in your name and up-to-date on its registration.
- Your driver’s license: The dealer will need to see your driver’s license to verify your identity.
- Your car loan information: You’ll need to provide the lender’s name, address, and phone number. You’ll also need to know your account number.
How To Calculate Your Car’s Value
The first step in trading in your car with a loan is to find out how much your car is worth. This will give you an idea of how much negative equity you have and how much money you’ll need to pay off the loan.
There are a few ways to calculate your car’s value:
- Use an online car valuation tool like Edmunds or Kelley Blue Book. This will allow you to get an estimate of your car’s value based on its make, model, and year.
- Get a car appraisal from a local dealership. Doing this will give you a more accurate estimate of your car’s value, but it may be higher than the actual market value.
- Use your car’s trade-in value from a previous car transaction. This will give you the most accurate estimate of your car’s value.
How To Trade In Your Car With A Loan
If you have negative equity in your car, you may not be able to trade it in until you pay off the difference. However, there are a few ways to trade in your car with a loan:
Get a new car loan to pay off the old one: If you can qualify for a new car loan with a lower interest rate, you may be able to use it to pay off the old car loan. This will lower your monthly payments and give you more flexibility when trading in your car.
Refinance your car loan: Refinancing your car loan can help you get a lower interest rate and monthly payment. This will make it easier to trade in your car and may even help you get a new car loan.
Pay off the loan with cash: If you have the cash, you can pay off the car loan and trade in your car without any negative equity. This is the best option if you can afford it.
Tips For Negotiating With Car Dealerships
Once you have an idea of your car’s value, you can start negotiating with car dealerships. Here are a few tips to help you get the best deal possible:
Shop around for the best offer. Don’t just take the first offer from the first dealership you visit. Get quotes from multiple dealerships and compare them.
Don’t reveal your car’s trade-in value until you’ve negotiated the price of the new car. If you reveal your trade-in value too early, the dealership may lowball you on the new car.
Be prepared to walk away. If the dealership isn’t giving you a good offer, don’t be afraid to walk away. They may come back with a better offer if they know you’re serious about trading in your car.
Is It A Good Idea To Trade In a Car With a Loan?
Trading in a car with a loan can be a good idea if you’re upside down on the loan, meaning you owe more than the car is worth. If you have negative equity, trading in your car can help you get rid of it and get into a new car without having to pay anything out of pocket. However, there are a few things we’ve mentioned you need to keep in mind before trading in a car with a loan.
First, you need to make sure you’re getting a new car loan with a lower interest rate. If you’re not, you may end up paying more in the long run. Second, you need to be prepared to negotiate with the dealership. They may try to lowball you on the new car if they know you’re upside down on the loan. Finally, if you can’t qualify for a new car loan or afford the monthly payments, you may need to sell your car privately or keep it until the loan is paid off.
Trading in a car with a loan can be a good idea if you’re upside down on the loan, but you need to be prepared before going into it. Keep these things in mind and you should be able to get a good deal on a new car.
What To Do If You Can’t Get a New Car Loan
If you have negative equity in your car and can’t get a new car loan, you may need to pay off the loan before you can trade it in. Here are a few options for doing this:
Make extra payments on your car loan. If you can afford it, making extra payments on your car loan will help you pay it off faster.
Sell your car privately. Making a private sale is a good idea if you need to get rid of it quickly. You may be able to sell it for more than the trade-in value, which will help you pay off the loan.
Keep your car until the loan is paid off. If you can’t afford to make extra payments or sell your car, you’ll need to keep it until the loan is paid off. This may not be the best option, but it’s better than having your car repossessed.
Key Takeaway
Now that you know how to trade in your car with a loan, it’s time to get started. The first step is to calculate your car’s value and find the best deal from a local dealership. If you have negative equity in your car, don’t worry–there are still ways to trade it in. Just be prepared to negotiate and walk away if you’re not getting the best offer.