How to Trade in a Car You Haven’t Paid Off: Expert Advice

 

If you are looking to trade in a car that’s not paid off, we offer advice and tips on how to go about it. We’ll also provide a checklist and tips to help you get the best deal on your trade.

Things to Consider When You Still Owe Money on A Car

The first thing you’ll need to do is determine how much you still owe on your current auto loan. It’s best to check with whoever is financing your loan to get the exact payoff amount. It could be different from what you see on your most recent statement or payment book due to interest calculations or possible prepayment penalties and other factors.

Next, understand that if you owe more on the vehicle than it is currently worth, the dealer will likely shift that amount into the payments of your new vehicle. As an example, if you owe $15,000 on the car but it is worth only $12,000, that $3,000 difference will be added into the financing of your new purchase.

“What you owe on your trade vs. what it is worth are two different things,” said Charles Cannon, general sales manager at a BMW dealership in Texas. “A lot of times, clients want what they owe on their vehicle.” But that might not match the vehicle’s actual value, Cannon said.

When Should You Wait to Trade

Generally, trading in a vehicle does not fetch as much value as selling it outright. So if you can contain your desire for a new car for a few more months or a year or two, the added equity can be beneficial.

“When you have negative equity, it’s usually a good idea to wait until you’ve paid off more of the loan before trading in your car, particularly if you bought a new car,” said Tilly Haines, an automotive analyst with Seeker, a digital marketing firm.

Or if you’re able to sell your car and get closer to the amount of your payoff, you might make out even better. But keep in mind that selling a car can be somewhat of a hassle that involves advertising it, showing it to people you might not know and haggling with your buyer to reach a price that both parties can live with.  

Trading for a More Expensive Car vs. A Less Expensive Car

Trading for a more expensive car than the one you currently own (and still owe on), just increases your debt, which you might be wary of. Adding your current negative equity to your new purchase “might sound like a good idea,” Haines said. “But unless you’re buying a cheaper car, it’s actually not, as it’ll mean you owe more than the new car is worth straight away, and you’ll be back in negative equity.”

How Soon Can You Trade in a Financed Car

This again depends on how much negative equity you are willing to add on to the debt of your new car purchase. Experts advise paying off more of your current loan before trading in for something new. 

How to Calculate the Cost of Trading a Car with a Loan Balance

Having positive equity on your current loan, that is, you owe less than the car is worth, makes it easier to trade in than when you have negative equity. “If the value of the car is more than what you owe, the dealership will accept the trade-in and take on the debt owed for the car knowing that they can still sell it for a profit,” said Jake McKenzie, an analyst with Auto Accessories Garage. But if you owe more than the car is worth, “a dealership may still allow a trade-in, but what you owe on the vehicle will be tacked on to the price of your new car and effectively transferred to the new loan,” McKenzie said.

How to Find the Value of Your Car

On Autotrader.com (https://www.autotrader.com/instant-cash-offer) you can easily enter some information about your vehicle and instantly receive an accurate assessment of your car’s value. The site uses data from a range of sources such as consumer information, depreciation costs and dealer transactions, to give you a snapshot of your car’s value. 

Calculating Money Owed and Trade

First, you’ll need to find out exactly how much you owe on your current vehicle. Check with your lender to get the most accurate figure. Then, using a car valuation tool such as the one on Autotrader.com (https://www.autotrader.com/instant-cash-offer), determine your car’s worth.

How to Trade in a Financed Car

-       -  Determine how much you owe on your current car (payoff amount) by consulting your lender

-       -  Check to see your car’s valuation using the tool on Autotrader.com

-       -  Select the new car you want to buy

-       -  If you owe more on your current car than it is worth, expect to have that difference added to the loan amount of your new purchase