If you find yourself in a situation where you still owe money on your vehicle but are considering trading it in for a new one, you may be wondering if it’s possible. The good news is that it is indeed possible to trade in a vehicle you still owe on. However, there are a few things you need to consider before making this decision.
Understanding Your Loan
First, you should have a clear understanding of your current loan. Take a look at your loan statement to determine the remaining balance and the interest rate you’re paying. This information will help you make an informed decision about whether trading in your vehicle is financially viable.
Equity and Negative Equity
Equity refers to the value of your vehicle minus the amount you owe on it. If your vehicle is worth more than what you owe, you have positive equity. On the other hand, if you owe more than the vehicle’s value, you have negative equity, also known as being “upside down” on your loan. Trading in a vehicle with negative equity can be more challenging, but it’s not impossible.
Trading In a Vehicle with Positive Equity
If you have positive equity on your vehicle, trading it in is relatively straightforward. The dealership will assess the value of your current vehicle and deduct what you owe on it from the trade-in value. The remaining amount can then be used as a down payment for your new vehicle. This reduces the loan amount you’ll need for your new purchase.
Benefits of Trading In
Trading in a vehicle with positive equity offers several benefits. Firstly, it simplifies the process of getting a new vehicle since you don’t have to worry about selling your current one independently. Secondly, it can lower the amount you need to finance for your new vehicle, potentially resulting in lower monthly payments. Finally, trading in can save you time and effort, as the dealership takes care of the paperwork and pays off your existing loan.
Trading In a Vehicle with Negative Equity
If you have negative equity on your vehicle, trading it in becomes a bit more complex. The dealership will still assess the value of your current vehicle and deduct what you owe on it. However, the remaining negative equity will be rolled over into the loan for your new vehicle. This means you’ll be financing both the new vehicle and the remaining balance from your previous loan.
Considerations for Negative Equity
Before trading in a vehicle with negative equity, it’s essential to consider a few factors. Firstly, rolling over negative equity can result in higher monthly payments, as you’ll be financing a larger amount. Secondly, it’s crucial to find a dealership that is willing to work with you and offer a fair trade-in value. Shopping around and negotiating can help you minimize the impact of negative equity on your new loan.
Trading in a vehicle you still owe on is possible, whether you have positive or negative equity. However, it’s crucial to carefully evaluate your loan, equity situation, and the potential impact on your new loan before making a decision. Consider speaking with a financial advisor or consulting multiple dealerships to ensure you make the best choice for your financial circumstances.