How Does Trading in a Financed Car Work?

How Does Trading in a Financed Car Work?

You can always trade-in your financed car even if you haven’t paid off the full loan. Trade-in deals are lucrative but costly options.

Let us discuss some key factors that can help you get a good trade-in deal for your financed car.

How Does Trading in a Financed Car Work?

You can trade in a car even if it is purchased with a loan. Trading in a financed car is possible in most cases but there are several factors that you should consider.

The general process of trading in a financed car involved finding a dealer that offers the trade-in option and transferring the ownership to the dealer. From here on, the dealer will pay off the remaining payments of the loan after receiving the equity difference from you.

A car dealer will usually need the following information from your side:

  • Car loan details including your account number
  • Vehicle registration
  • Driver’s license
  • Car insurance details
  • Details of trade-in option
  • Your car with keys and essentials

How Soon Can You Trade in your Financed Car?

Technically, there is no time limit to trade in a financed car. You can consider the option as soon as you get your new financed car.

You should remember that new cars drop market value in the beginning as soon as they hit the roads. It means the car equity will decrease in the first few months quickly.

If you had purchased a used car, you can consider the trade-in option at any time.

Factors Affecting your Trade-in Options

The trade-in value of your financed car is negotiable just like the price of a new or used car. Similarly, a few factors affect the trade-in value generally.

Mileage and Car Condition

Like your used or newly bought car, the mileage plays a key role in determining the trade-in price of your financed car.

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Higher mileage is also likely to show more wear on your car whether you financed a new or used car. Therefore, your car mileage and condition will have a great impact on the trade-in price.

Car Equity Value

When you explore trade-in options, you must carefully evaluate how much equity your financed car has accumulated.

If the market value of your financed car is greater than the remaining loan amount, it will have positive equity. If the remaining loan amount is greater than the market value of the car, it will have negative equity.

Market Price Value of the Car

Eventually, the market price of the financed car will determine both factors mentioned above.

The car prices are always negotiable. Therefore, when you consider the trade-in option with a car dealer, get prepared for an effective negotiation round.

All these factors are critical in the trade-in process whether your financed car is a new or used one.

Trade-in Scenarios for a Financed Car

When you choose to trade in your financed car, you’ll have a few situations to consider.

Trade-in When Your Car Has Positive Equity

When the market price of your financed car is more than the car equity, you’ll have a positive balance. The car dealer will adjust this amount to your new car amount.

Positive equity will reduce the amount you owe to the dealer.

Trade-in When Your Car Has Negative Equity

If you have not repaid the larger portion of your existing car loan, it’s likely to get you negative equity. It means your financed car owes more than its current market value.

When trading in a financed car with negative equity, you’ll need to pay the difference or rollover that amount to your new finance deal.

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What to Do If Your Car Has Negative Equity?

In most cases, car owners find negative equity with their financed cars. A finance deal incurs interest charges, the market value of the car decreases, and dealers bid a lower price on a financed car.

So, here are a few options for you to consider if your financed car has negative equity.

Rollover loan

A good option for you is to roll over the negative equity of your existing car into the new finance deal.

The car dealer will adjust the difference into a new deal. Obviously, it will make the deal costly for you but you can achieve the car trade-in without any difficulties.

Pay off the Difference

You can pay off the difference in the price of a new car and the equity of the existing car if you have cash in hand.

Dealers also offer cash rebates or discounts with trade-in offers frequently. You can combine these offers to pay off the differences and obtain a new car with its current finance deal.

Delay the Deal

This option is suitable for you if you do not have cash in hand. Also, if you do not want to pay more interest by rolling over the remaining balance into a new car deal.

Delaying the deal is an ideal option for you if you have a small amount due for your existing car.

Selling off Your Financed Car

An out-of-the-box option is to sell your financed car to a private buyer. This way, you can get a better car price and also choose a new car with a new deal.

However, using this option means you cannot trade in a car from a car dealer. You can still purchase your preferred car but without any special benefits that come with a trade-in option.

Top Tips to Trade-in Your Financed Car

Here are a few top tips for you to maximize benefits if you have decided to trade in your financed car.

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Find Market Value of Your Car

You can use the available information and tools to find the market value of your car. Using an online tool can help you determine the market value of the car by simply providing the car’s make, model, and year.

However, consider that the actual market value of the car will also depend on the mileage and condition. Therefore, checking the car value will help you get going with a good trade-in deal.

Gather Important Documents

Your car dealer or any other lender will require important documentation from your side. Therefore, keeping all documents like car registration, loan agreement, and trade-in quotes can help you complete the process quickly.

Evaluate Different Options

Different car dealers will put different trade-in options. These options will often be attached to specific car models.

It is always a good idea to compare these trade-in deals and see which one gets you the right deal.

Get Prepared for Negotiations

Remember, you can always negotiate the new car deal as well as the trade-in deal. Keep negotiating both deals separately until you find the best offer from the car dealer.

If you are not good at negotiations or don’t want to, you can always compare different options from different car dealers. The idea is to get the best car price for your existing car and get the lowest financing deal on your new car.

Close the Deal

Once you go through these steps, you can close the deal with the car dealer.

Carefully, read the new sales agreement and know the finance terms before signing the contract.