Thinking of trading in a car you still have payments on can be overwhelming. How do you go about it? What are the options? And what are the trade-offs? In this article, we’ll explore three different options for trading in your car while still making payments. We’ll walk through the steps you need to take, the risks and benefits of each, and what to expect when negotiating with dealers. So, if you’re stuck with a car you no longer want, read on to learn more about your options.
Option 1: Pay off the Loan
Suppose you are itching for a new car, but you still have payments to complete on your current one. Can you trade in your car and pay for the new one? Fortunately, you do have several options to do so. One such option is to pay off the existing car loan. By determining the payoff amount, weighing up the trade-offs, and negotiating with the dealer, you can streamline your finances and upgrade to a new vehicle. However, before you make a decision, it’s crucial to know what you’re getting into while trading in a car with payments. This guide can be used in conjunction with other related articles, such as Trade Your Car in With Negative Equity and Car Trade-in Options: What You Need to Know, for a more comprehensive understanding.
Determine the Payoff Amount
Determining the payoff amount of your car loan is crucial before deciding to trade in your car. It is the amount you owe on your vehicle loan and is typically higher than your current car’s trade-in value. This option is recommended if you have enough funds to pay off your car loan so that you won’t accumulate any more debt. Here’s how to determine the payoff amount:
- Contact your lender: Generally, you can find the payoff amount by contacting your lender. You can call your lender or check your account on their website to find the amount you owe.
- Double-check the date: Before paying the payoff amount, make sure to double-check the expiration date of the quote. If you don’t pay off the amount before the quote expires, it may change due to interest.
- Add additional fees: The payoff amount usually only includes the remaining principal balance. However, additional fees such as early repayment fees or prepayment penalties may apply; therefore, make sure to add them to your payoff amount.
Checking the payoff amount of your car loan is essential if you want to pay off your loan entirely and trade your car. However, if paying off your loan isn’t an option, there are other ways you can trade in your car, such as rolling over the negative equity or finding a dealer who will handle the loan. You can read this article for tips on calculating your car trade-in value, including any outstanding loans that you might have on your vehicle.
Consider the Trade-Offs
Paying off your car loan before trading in the car has both benefits and drawbacks. One of the most significant drawbacks is the financial aspect. Paying off a car loan can be costly and may require you to save for several months or even years to achieve the amount owed to pay off the loan. On the other hand, one of the benefits of paying off the loan is that you may have increased bargaining power and could get a better deal on your trade-in than if you still had a balance owing on your loan.
Another trade-off to consider is the convenience of the process. Trading in your car requires less effort than paying off your loan, but it might not be the most sensible option, especially if you’re trading in the car only to swap it with a higher-cost model. In such situations, the additional debt from a new loan can outweigh the benefits of reducing your ongoing car costs. If you can’t pay off the car loan early or if you need the equity in your car to purchase another vehicle, a trade-in may be the best option. However, if you have the means to pay off the car loan before trading it in, that may be the superior option.
Ultimately, it is crucial to weigh the pros and cons before deciding to trade in your car while still making payments. The decision to trade-in while still paying off a loan requires consideration of various factors such as the amount owed, the value of the car, the trade-in value, and the potential lessening of future car costs. Considering the trade-offs and your unique circumstances will help you come to the best conclusion for your financial situation.
Option 2: Roll Over the Negative Equity
If paying off your car loan is not an option, you may be able to roll over the negative equity into your next car loan. Rolling over negative equity means adding the amount you still owe on your current car loan to the new loan. While this may seem like an easy solution, it’s important to understand how it works and the potential risks involved. In this section, we’ll delve into the details of rolling over negative equity and explore whether it’s the right choice for you. If you want to learn more about trading in a car you’re still making payments on, check out our guide on car trade-ins with payments.
Understand What Negative Equity Is
Negative equity is a situation where you owe more money on a car than it is currently worth. In other words, the outstanding loan balance is higher than the car’s fair market value. Negative equity is also known as being “upside-down” on your car loan.
One cause of negative equity is when the value of the car drops faster than your payments reduce the loan balance. This commonly happens when a car is purchased with a small down payment, as the value of the car may decrease due to depreciation within the first few years. Another reason for negative equity is when you trade in a car before the loan has been fully paid off.
Negative equity can be a major problem if you want to trade in the car you’re still making payments on. It can leave you with a shortfall – the amount you owe on the car loan that you still have to pay back – that must be resolved before you can trade in your car. You may have to find a way to pay off the shortfall or accept a higher monthly payment if you roll over the negative equity into another loan.
It’s important to note that negative equity is not uncommon, but that doesn’t mean it should be ignored. In fact, ignoring negative equity may lead to default on your car loan, which can negatively impact your credit score and cause you to pay additional fees and face legal action. Thus, it is important to address the negative equity issue before trading in your car.
To read more about avoiding car loan default, click here. To learn about negotiating car payments, click here. To read more about trading in a car with negative equity, click here.
Know How Rolling Over Negative Equity Works
Rolling over negative equity is a process that allows you to add the outstanding balance on your current vehicle loan to your new loan, essentially increasing the amount you are borrowing. This option is available to those who owe more on their vehicle than what it is currently worth, also known as being “upside down” on the loan. Here are the steps you need to follow to understand how rolling over negative equity works:
- Step 1: Determine the amount of negative equity you have on your current loan. This can be done by subtracting the current market value of the vehicle from the amount you still owe on the loan.
- Step 2: Research the value of your trade-in vehicle to determine how much it will offset the negative equity. Depending on the condition of the vehicle, the dealer may offer you less than its market value, which will further increase your negative equity.
- Step 3: Negotiate the terms of the new car loan with the dealer. Be sure to understand the interest rate, length of the loan, and any additional fees. The negative equity will be added to the new loan, which means you will be paying interest on that amount as well.
- Step 4: Sign the new loan agreement and start making payments. Keep in mind that while rolling over the negative equity may lower your monthly payments, it also means you will be paying off your previous loan over a longer period of time.
- Step 5: Consider the risks and benefits associated with rolling over negative equity. While this option may allow you to get a new car, it also means you will owe more money than the car is worth. If you plan on trading in your car again in the future, you will likely still be upside down on the loan, making it harder to negotiate a fair deal.
Rolling over negative equity can be a helpful option for those who need a new car but are still upside down on their current loan. However, it is important to understand the risks and make an informed decision based on your individual financial situation.
Consider the Risks and Benefits
When considering the option of rolling over negative equity when trading in a car that you still have payments on, it is important to weigh the risks and benefits. This method can be risky as it can lead to a deeper cycle of debt for the car owner. Here are some potential risks and benefits of rolling over negative equity:
| Risks | Benefits |
|---|---|
| If you have negative equity on your current car, it could be rolled over into the new loan, leading to a higher monthly payment amount and longer loan term. This would mean that your car payments could last longer than the life of the vehicle, which could lead to further debt. | If you roll over negative equity into your new loan, you can avoid having to pay any upfront amount for trading in your vehicle. This can be helpful for those who are not in a position to pay off their existing loan. |
| If the value of your car drops significantly, you could still end up with negative equity on the new loan, which could lead to further financial consequences down the line. | If you are able to qualify for a lower interest rate or better loan terms, rolling over negative equity could be a smart financial move. This would mean that you could potentially save money in the long run. |
| If you end up trading in your car several times with negative equity rolled over, you could end up with a never-ending cycle of debt in which you owe more on your car than it is worth. | If you are in urgent need of a new vehicle, rolling over negative equity could be the quickest option for you. This could be beneficial if your car is no longer drivable or if you need a reliable vehicle for work or family purposes. |
As you can see, rolling over negative equity when trading in your car can be both advantageous and detrimental. It is important to carefully consider your financial situation and future plans before making a decision.
Option 3: Find a Dealer Who Will Handle the Loan
If paying off your car loan or rolling over negative equity doesn’t seem like a viable option, you can explore the possibility of finding a dealer who will handle the loan. This can be a convenient way to trade in your current car and get a new one without having to deal directly with the lender. However, this option comes with its own set of challenges and risks that you should be aware of before making any decisions. Let’s explore the key factors you need to consider when finding a dealer who will handle your car loan.
Check if Your Lender Allows It
Before attempting to trade in your car that still has payments on it, it’s crucial to check with your lender whether they allow this type of transaction. Some lenders may not allow the transfer of a car loan to a new vehicle or dealer, which may complicate the process. To check if your lender allows it, follow these steps:
- Review the Terms and Conditions of Your Loan: Carefully read the terms of your car loan to determine if there are any clauses prohibiting trading in the vehicle before it’s paid off.
- Contact Your Lender: If you’re still unsure, contact your lender directly and ask if they allow trading in your car while you still have payments left. Be sure to have your account information handy when you call.
It’s important to note that even if your lender does allow a trade-in, they may still have requirements or restrictions in place. For example, they may require that your new car be of equal or greater value than your current one to qualify for a trade-in. Additionally, some lenders may only approve trades through specific dealerships or limit the amount of negative equity that can be rolled over. It’s essential to clarify any requirements or restrictions with your lender before proceeding with the trade-in process.
Find a Dealer Who Will Work With You
When looking for a dealer who is willing to work with you to trade in a car you’re still making payments on, it can be helpful to have a few strategies in mind. Here are some tips to help you find a dealer who will work with you:
| Research dealerships in your area | Start by searching online for dealerships in your area that offer trade-ins. Look for dealerships that have a good reputation and positive customer reviews |
| Ask for recommendations | If you have friends or family members who have recently traded in a car, ask them if they had a good experience with a particular dealership. Referrals can be a great way to find a trust-worthy dealership that is willing to work with you. |
| Contact dealerships directly | Reach out to dealerships in your area and explain your situation. Ask them if they are willing to handle the trade-in process with your lender. Be prepared to provide them with information about your car and your outstanding loan balance. |
| Be open to negotiation | When you find a dealership that is willing to work with you, be open to negotiating the terms of the trade-in. Ask for a fair price for your car and be prepared to walk away if the terms aren’t acceptable to you. |
Keep in mind that not all dealerships will be willing to handle a trade-in when you still owe money on your car. It may take some time and effort to find a dealership that will work with you, so be patient and persistent in your search.
Be Prepared to Negotiate
Negotiating with a dealer to take over the payments on your current car loan can be a challenging process. However, there are a few things you can do to prepare yourself for a successful negotiation.
Firstly, it’s important to research the value of your car, so you have a good idea of what your car is worth. This will help you determine whether or not the dealer is offering you a fair deal. You can use websites like Kelley Blue Book or Edmunds to get an estimate of your car’s value.
Secondly, be prepared to walk away if the dealer is not offering you a reasonable deal. Remember, the dealer is trying to make a profit, and they may offer you less than what you think your car is worth. If you’re not happy with the offer, politely decline and consider other options.
Thirdly, consider other incentives the dealer may offer you. For example, they may offer to waive certain fees, or they may offer you a discount on the purchase of a new car. These incentives can help offset any negative equity you may have.
Finally, be firm but polite during the negotiation process. Remember, both you and the dealer are trying to make a deal that benefits both parties. If you’re too aggressive or confrontational, it could negatively impact the negotiation process.
Here’s a summary of how to prepare for a successful negotiation:
| Research the value of your car beforehand. |
| Be prepared to walk away if the dealer is offering an unreasonable deal. |
| Consider other incentives the dealer may offer. |
| Be firm but polite during the negotiation process. |
By following these tips, you can increase your chances of successfully negotiating a car trade-in while still making payments on the loan.
Conclusion
After exploring the three options for trading in a car that you’re still making payments on, it’s important to weigh the pros and cons of each before making a decision. Option One requires paying off the loan in full before trading in the car, which can be a significant financial burden. Option Two involves rolling over negative equity into your new car loan, which can result in higher interest rates and a longer loan term. Option Three involves finding a dealer who is willing to handle the loan, but this option may not always be available.
Ultimately, the decision will depend on your individual financial situation and goals. If you have the means to pay off the loan and want to avoid any potential negative long-term effects of rolling over negative equity, Option One may be the best choice. If you’re willing to accept the risks and potential drawbacks of rolling over negative equity, Option Two could be a viable option. And if you’re comfortable with negotiating with dealers and are able to find one who is willing to handle the loan, Option Three may be the most convenient choice.
Regardless of which option you choose, it’s important to carefully consider all the factors and do your research before making a decision. The last thing you want is to end up with a more expensive car loan, lower credit score or additional financial complications. By understanding your options and the potential risks and benefits, you can make an informed decision that is right for you.
Frequently Asked Questions
Can I trade in a car I’m still making payments on?
Yes, it is possible to trade in a car that you are still making payments on.
Do I need to have good credit to trade in a car with outstanding payments?
Having good credit can help you get better terms on a new car loan, but it is not always necessary to trade in a car with outstanding payments.
Can I trade in my car if I owe more than it’s worth?
Yes, it is possible to trade in a car that is worth less than what you owe on it, but it may result in negative equity.
What is negative equity?
Negative equity is when you owe more on a car than it is worth. This can happen if the car loses value faster than you are paying off the loan.
How can I determine the payoff amount for my car loan?
You can call your lender or check your account online to find out the payoff amount for your car loan.
What are the risks and benefits of rolling over negative equity?
The benefit is that you can trade in your car without having to pay off the negative equity first. The risk is that you will owe more on the new car loan and may end up paying more in interest over time.
Can all lenders roll over negative equity into a new car loan?
No, not all lenders allow the rolling over negative equity into a new car loan. You will need to check with your lender to see if it is an option.
Do all dealerships work with customers who have outstanding car loan balances?
No, not all dealerships are willing to work with customers who have outstanding car loan balances. It may take some research to find a dealership that will work with you.
Is it possible to negotiate the terms of a new car loan if I have negative equity?
Yes, it is possible to negotiate the terms of a new car loan if you have negative equity. Be prepared to make a larger down payment or accept a higher interest rate.
What are some alternatives to trading in a car with outstanding payments?
You can try to sell the car privately, refinance your car loan, or continue making payments until the car is paid off.
