How Soon Can You Trade in a Financed Car?

Posted by in Auto | Updated on November 15, 2022
At a Glance: Identifying the approximate market price of your vehicle will help you get an idea of what a dealer would bid. Certain online sites can help you predict your car’s trade-in value.

At a Glance: There is no strict limit on the amount of time you have to wait to trade in a financed car. If you owe more on the loan than the car is worth, however, you’ll have to take out a larger auto loan for your new car to make up the difference or pay off the difference immediately.

Is it possible to trade in a vehicle that has been financed? Yup!

However, you should be aware that exchanging a financed vehicle would not eliminate the loan. You will still be responsible for the remaining amount.

Most dealerships will present you with several options, depending on whether you have positive or negative equity, as well as how you plan to cash in a vehicle with a loan balance.

Can You Trade In a Financed Car?

Yes. Even though you are already paying the loan on your vehicle, you can swap it in for a new one. The person who takes your car off your hands will give you money in exchange, as much as any other trade-in.

In some situations, the lump sum would cover the outstanding amount on your debt, and you might even get a little extra that you can put toward your next purchase!

But first, you need to figure out how much equity you have in the car. Equity is the difference between the present valuation of your vehicle and the balance you owe on your debt. You have positive or negative equity based on those two variables that we will soon discuss.

How Long Do You Have to Wait to Trade In a Financed Car?

A financed vehicle can be traded in at any time, but you would want to wait a year or so if you have purchased a new car. Automobiles lose value over time, and a brand-new car will lose 20% or more of its value in the first year of ownership, steadily losing more in subsequent years.

Depending on the extent of your down payment and how easily your car has depreciated, you can find yourself in a situation where you have negative equity in the vehicle almost instantly.

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Understanding Positive and Negative Equity

You have negative equity, also called being “upside-down” or “underwater” on your car loan, if the value of your vehicle is less than what you owe on it. You will have to compensate for the gap between the debt balance and the trade-in value by trading in a car with negative equity.

If you plan to trade in a car with negative equity, you will need to figure out which choice is better for you.

Consolidate Your Negative Equity Into a New Car Loan

While this option may be easy, it raises the cost of the current loan, which means you may end up paying more in interest for the loan. This choice typically involves borrowing more money than what your new vehicle is worth, putting you at a higher risk of falling into debt again.

Pay the difference between the amount of your trade-in and the debt you owe.

You will be able to afford the difference between what you owe on your new debt and what the broker is paying you on your trade-in if you have the cash on hand. This will help you drive the cost of a new loan down.

Postpone the Trade-In

You may want to hold off on trading in your car until you have paid off your loan or are no longer in debt.

Positive Equity

The positive difference between the value of your vehicle and the balance you owe on your loan is referred to as positive equity. Let’s say your car is worth $8,000 as a trade-in, and you owe $4,000 on it. You now have $4,000 in equity that you can put toward the price of a new vehicle.

This value is excluded from the current car’s agreed amount. You may make a down payment to lower the overall amount on the lease, apart from having the equity added to the new car purchase.

However, you will have to get financing for the remainder of the car’s selling price, either in cash or with an auto loan. The trade-in amount will be included in the deal on your new vehicle. Check that you receive the exact price you bargained for.

How to Trade In a Car With a Loan

Find Out How Much Your Trade-In Car Is Worth

The first step in trading in a financed car is to figure out how much your car is worth and how much you owe on it. Trading in a car with negative equity could prove to be a costly decision in the long run.

Identifying the approximate market price of your vehicle will help you get an idea of what a dealer would bid on your trade-in and give you some bargaining leverage. Certain online sites can help you predict your car’s trade-in value based on things like the year, build, and model of your vehicle, as well as the number of miles on the odometer.

Compare the approximate trade-in value of your vehicle to the loan payout sum to determine whether you have positive or negative equity. It can vary significantly from your loan balance because it includes your loan balance and any interest and fees that you may have incurred.

Compare Trade-In Values Before Making a Deal

To get a trade-in value calculation, get in touch with several dealers. If you believe a dealer is offering you a low quote, you can use the car value figures you found to bargain. Obtaining various quotes will assist you in ensuring that you get the best price possible.

Conclude the Agreement

Close the deal after you have settled on a trade-in value along with the price of the new car. Read the agreement thoroughly and make sure it includes the current loan sum, the loan period, monthly payment, interest rate, and any other verbal commitments made during the bargaining process.

It should also specify how any negative equity would be dealt with. Some dealers will announce that they will pay off your car loan, regardless of the amount you owe, but end up incorporating the negative equity into your new loan.

Alternatives to Auto Trade-Ins?

You do not necessarily have to trade in your financed car. You may still choose to sell it to a private buyer, but you should first notify your lender. Although a private sale can take longer, you may end up getting a larger amount for your vehicle than a dealer trade-in, which could significantly reduce the negative equity, if any.

Try swapping in your new vehicle for a less pricey one if you can not purchase the car you want as you will need to carry over the negative equity. Although you will have to roll back the negative equity from the previous auto loan, your overall loan balance will be reduced, and you will end up paying less in total interest.

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Conclusion

As you can see, you can trade in a financed car easily. However, we recommended taking the time to understand the nitty-gritty details involved to make the right decision.


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